During late 2003, the chair of the Texas Society of CPAs, Nita Clyde, wrote a letter to Scott Voynich, chair of the American Institute of CPAs (AICPA). The letter expressed concerns about the professional responsibilities of CPAs who outsource work internationally and asked the AICPA to study the issue. Specifi c concerns included whether clients should be informed that work is sent to foreign locations and whether client privacy was breached. At the time, outsourcing was used increasingly for all types of goods and services. The accounting profession was no exception. Years earlier, CPAs had begun outsourcing by hiring part-time staff who sometimes worked at home. As staff shortage problems increased and CPAs looked for new ways to reduce costs, they entered into international outsourcing arrangements. Usually the type of work outsourced was routine, such as transaction processing or tax return preparation. Proponents argued that these arrangements reduced costs, improved effi ciency, and freed CPAs to focus on more value-added client services. Voynich responded that CPAs already had several professional standards relating to international outsourcing. In particular, AICPA ethics rulings required CPAs to ensure that client confi dentiality was maintained and that work was performed competently and with due professional care. Confi dentiality included using encryption software and other controls when transmitting data. Voynich also asked the AICPA staff to provide additional guidance to CPAs.
REQUIRED
Exhibit 4.4 provides examples of issues that fi nancial institutions should consider when they engage in international outsourcing of information technology (IT). Refer to these issues as you answer the following questions. Suppose a CPA is thinking about outsourcing the preparation of routine income tax returns to an accounting fi rm in another country.
A. Discuss whether the CPA can be sure that services are performed competently and with due professional care. Does it matter whether the services are performed by local staff or in another country? Why or why not?
B. Discuss whether the CPA can be sure that client data will remain confi dential. Does it matter whether the services are performed by local staff or in another country? Why or why not?
C. If the CPA decides to outsource, should clients be informed that their tax returns are prepared in another country? Why or why not?
D. Describe the pros and cons of outsourcing to the CPA.