Audit Clause Popular in Outsourcing Agreements

How much business do you outsource to a third-party provider, and what kinds of controls have you built in to the relationship?

An 'audit' clause in an outsourcing agreement is becoming more and more popular, especially as businesses continue to outsource tasks that are complex and require third-parties to touch and deal with sensitive data. Experts advise that agreements include a 'right-to-audit' clause so that auditors can examine the financial background and stability of the vendor can be examined

Most often, auditors probably will ensure the standards outlined in the agreement are delivered, as well as assurance of the security issues surrounding an engagement.

Here are five areas to remember about the right-to-audit clause within an agreement:

  • make sure the clause is in writing; verbal agreements are not satisfactory;
  • it has detrimental consequences if contractual expectations are not met;
  • the wording includes any limits on the auditor's access to records;
  • the number of times an audit can occur is included (at least once a year); and
  • the agreement states the outsourcer's time spent with auditors should not be charged.

You may like these other stories...

The Public Company Accounting Oversight Board (PCAOB) on Tuesday adopted a new auditing standard and amendments in three areas of the audit that could pose an increased risk of material misstatement in company financial...
Read more from Larry Perry here and in the Today’s World of Audits archive.In my last article, I presented an overview of one of the first steps in the preplanning phase of an audit engagement: reviewing prior year...
Read more from Larry Perry here and in the Today’s World of Audits archive.AU-C Section 800, Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks (SPFs),...

Upcoming CPE Webinars

Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.