A study published in the most recent issue of Contemporary Accounting Research has found that companies that use a lot of foreign auditors have a higher likelihood of misstatement, a higher likelihood of non-timely reporting, and higher audit fees. The researchers used data from the Public Company Accounting Oversight Board (PCAOB) Form AP, mandated in 2016, which requires that audit firms identify the engagement partner and other firms that took part in the audit. They looked at a sample of 7,582 U.S. issuer-years from April 2017 to April 2019.

While the use of foreign auditors is linked with adverse results, the researchers said it is not their use by itself that is the cause. Rather, the study found that "the amount of work conducted by these auditors was associated with lower audit quality (i.e., higher likelihood of misstatement), higher likelihood of nontimely reporting, and higher audit fees, which collectively suggest that component auditor engagements are associated with adverse outcomes." In addition, the use of auditors in countries with significant geographic and cultural distance, weak rule of law, and low English language proficiency was associated with adverse outcomes. However, "work conducted by competent component auditors in barrier countries is not associated with adverse outcomes, which suggests lead auditors can overcome certain country-specific barriers by ensuring component auditor teams are sufficiently competent." The researchers said this indicates that the adverse effects associated with the use of foreign auditors is more the result of audit coordination issues.

The researchers also found that the use of foreign auditors is widespread among U.S. issuers; 37.6 percent of all such firms use at least one foreign auditor. Among firms with significant multinational operations, this proportion grows to 80.8 percent of issuers. The majority of this work, 90.2 percent, is performed by members of an in-network affiliate (e.g. a U.S. firm's Canadian branch). The mean number of foreign auditors used by companies is 3.7 and the mean percentage of audit hours completed by them is 17.7, ranging from 2 to 65 percent.