Outsourcing – Experts fear new audit rules

The new statement of auditing practice requiring outsource providers to open their books for client auditors could breach commercial confidentiality and increase costs, experts warned last week.

SAS 480: ‘Service Organisations’ requires auditors to visit the outsourcing service provider and check accounting records if they are not entirely satisfied by the evidence of their own client’s financial controls on the contract.

The guidance, which came into effect for audits on financial statements beginning from 23 December 1998, may require traditionally secretive outsourcers, including Big Five consultancies and subsidiaries, to expose their pricing strategies to daylight.

‘If the account records are outsourced, it is very hard to imagine an audit without getting access to the financial records,’ Accounting Practices Board technical director Jon Grant said.

The guideline drew a mixed reaction from the accounting community. Mark Holland, IT consultant at Kidsons Impey, endorsed the principle of SAS 480 but said it risked exposing the outsourcer’s business strategy to rivals. ‘The client’s auditor might see the services provider’s costs and undercut them in their outsourcing arm,’ he said.

He added that outsourcing providers might also charge customers for lost time.

But Mark Ashton, FD of Deloitte & Touche outsourcing arm CSL, supported the APB statement. ‘In our outsourcing services, the financial controls specified by the client are built into the contract. The APB standard is a good thing.’

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