ACCA AA Syllabus C. Internal Control - Outsourcing - Notes ^{2 / 8}

The use of external suppliers for finished products & services

Outsourcing

is when an external specialist organisation (also known as a service organisation) is used to carry out functions which would normally be performed within the entity.

Service organisations usually operate in one of two ways:

1. The service organisation fully maintains the outsourced function (keeps accounting records and internal records)

2. The service organisation executes transactions only at the request of the entity, or acts as a custodian of assets. 
   Here the reporting entity will maintain internal records relating to the outsourced function.

The current economic environment presents an excellent opportunity to further utilise outsourcing as a way to reduce their manufacturing and design costs, there are challenges and difficulties that come with this kind of change.