Outsourcing guidance for CPAs: hot topic has everyone from state legislators to the AICPA chiming in.

• Author: Ascierto, Jerry
• Position: American Institute of Certified Public Accountants

Ask 10 CPAs what they think of outsourcing and you'll probably get 10 different responses. The mere mention of the word inspires lengthy and emotional debate.

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Outsourcing has morphed into a political concern, fueling the temperaments of a population waiting for the economy to kick into high gear once again. But politics aside, the chief concerns among accounting groups and regulatory bodies are not labor and trade issues, but the safeguarding of private information and the issue of disclosure.

Should clients be informed of work performed by third-party service providers? What can a CPA do-to ensure the safety and integrity of a client's personal information once it is in the hands of a third party?

Though outsourcing has been a commonly employed business tactic for years, the rise of identity theft has made the issue of safeguarding personal information a more immediate concern.

"This issue is not new," says Ric Rosario, CPA. CFE and vice president of risk management for Camico Mutual Insurance Company. "What's changed are the speed of information being transferred and the ease of identity theft, which didn't exist 20 years ago."

The Federal Trade Commission estimates that nearly 31,000 Californians were victims of identity theft in 2002, the second highest per capita rate in the country. And according to separate studies done by Gartner Research and Harris Interactive in July 2003, approximately 7 million U.S. adults were victims of identity theft in the prior year. That's about 19,178 a day, 799 an hour, or 13.3 a minute.

State legislators are proposing regulations that would affect the practice of outsourcing or offshoring, as are the AICPA and California Board of Accountancy, which have been studying the issues amid growing calls for guidance.

DEFINITION OF TERMS

In its broadest sense, outsource is defined by Webster's New World College Dictionary as "to transfer (certain manufacturing operations, administrative activities, etc.) to outside contractors, especially so as to reduce one's operating costs."

But the term is often confused with offshoring, which is defined as "engaged in outside the U.S. as by U.S. banks or manufacturers (offshore investments, offshore assembly plants)."

One can outsource without offshoring, and one can offshore without outsourcing. Outsourcing involves the transfer of work to any third party, regardless of geography, whereas offshoring (in the context of outsourcing) involves third-party service providers located in another country.

STATE LEGISLATION

Most of the legislative concern focuses on jobs leaving America and the inability of the U.S. government to enforce confidentiality and privacy laws when workers are in another country. To date, 35 state legislatures have drafted bills addressing offshoring and 161 state laws restricting or banning offshoring have been proposed.

California legislators have introduced a bevy of...