1.

Write-up of assigned topics (overview of industry, audit considerations which

are different in normal industry, revenue recognition, classify transaction
cycles for assigned industry)

Overview of Business process outsourcing sector

Business process outsourcing (BPO) is a business process in which a

company contracts with an outside service provider to undertake a critical
business task. BPO emerged among large manufacturing firms to help with
supply chain management, but it has now expanded to cover other types of
industries, including service companies. Many firms, from small start-ups to
major corporations, choose to outsource activities as new and innovative
services become more available in today's highly competitive business
environment.

Business Process Outsourcing (BPO) is one of the Philippines' fastest-

growing sectors. The world's BPO capital has gradually grown over the decades,
making a substantial contribution to the country's GDP development and other
economic elements. With over 850 registered BPO businesses, the sector is
predicted to develop at a rate of seven to nine percent per year, which is greater
than the worldwide average.

2. Discuss the revenue cycle

3. Relevant standard
4. Laws and regulations governing the industry
5. Other topics that will be relevant in the industry
6. Comparison of normal and specialized industry
7. (1) example of audited FS of that industry
8. Risk factors
9. References
 Business process outsourcing (BPO) is a business process in which a company
contracts with an outside service provider to undertake a critical business task.
BPO emerged among large manufacturing firms to help with supply chain
management, but it has now expanded to cover other types of industries, including
service companies.

Many firms, from small start-ups to major corporations, choose to outsource

activities as new and innovative services become more available in today's highly
competitive business environment. Moreover, outsourcing allows the firm to
minimize expenses, gain scalability, reduce time to market, focus on core
operations, and expand capacity for growth and innovation. With that being said,
outsourced services are extremely beneficial to the organization.

A BPO organization covers a wide range of day-to-day business activities, and

the tasks of one division may occasionally overlap with those of another. The
industries have two large categories of services, namely Front-office services and
Back-office services.

A. Front Office Services

These are the processes where BPO personnel will interact directly with

customers and consumers. These functions are generally client-facing, they have
the opportunity to influence both profit generation and reputation while also
dealing with customer feedback.

Front-office services in a BPO may include:

a) Customer Support Services

A competent customer service team may boost a company's growth by

assisting in the long - term retention of client loyalty. Should you grow your team
in-house or outsource it to a specialist?

One of the most popular and common BPO services is customer support.
Businesses are getting a lot of clients every day. Their satisfaction is critical to the
company's overall performance. Businesses can outsource to professionals rather
than employing and training new in-house customer service executives. They will
be able to save money on recruiting and training, as well as time, while improving
customer satisfaction. Working with a high-quality BPO will alleviate the
employee’s stress of customer support, allowing them to focus more on vital
strategic matters.

BPO are experts in managing and scaling customer service teams as well as
key customer service metrics and customer service technology.  BPO customer
service providers offer a world-class outbound call support platform to
organizations which seeks to grow revenue by raising customer satisfaction levels.
Firms that provide these services have a team of qualified and professional
personnel that are competent in dealing with consumer difficulties. These services
would also help the business to market their products and services. In today's
quickly changing business climate, a successful corporation employs a variety of
pragmatic strategies to carve out its own specialized market. The strategy is aimed
to increase corporate revenues while developing customer relationships.
Organizations may do this by providing world-class BPO customer service.

b) Marketing Services

Outsourcing marketing services helps firms create procedures that promote

healthy, long-term growth. Marketing services provide the organization with access
to a pool of experienced expertise that may be in charge of all marketing initiatives.
Outsourcing marketing is also an excellent approach to have access to people who
may provide you with a different viewpoint and even new and innovative marketing
ideas to pursue. Outsourcing helps you to scale up and down your marketing
efforts quickly. If you have a great concept that has to be put into action, it is
simple to do so. Outsourcing allows you to operate with a more flexible bandwidth.
The most significant advantage of outsourcing marketing is that agencies will be
able to better track and prove your marketing, ensuring a return on investment.
Furthermore, expert marketing people may assist the company in developing
efficient marketing materials  in order to gain more consumers. Since they are
experts in their field, they can better examine the market and develop a profitable
company plan.

c) Information Technology Enabled Services

ITES BPO is a type of outsourcing in which the needed service is delivered

through technology. The service is supplied electronically, generally over the
Internet, although it can be given by any type of telecommunications or data
network. ITES offers a variety of IT-intensive procedures and services, such as
business process outsourcing (BPO) and knowledge process outsourcing (KPO),
which are supplied from a remote location over telecom networks. ITIS concentrates
on areas such as content management, finance and accounting, and research and
analytics.

Companies will gain flexibility by utilizing Business Process Outsourcing

(BPO), which is a component of ITeS. The majority of ITeS suppliers' services are
supplied on a fee-for-service basis. This enables the organization to shift its cost
structure from fixed to variable. A variable cost enables a corporation to adapt to
changes rapidly and to become more flexible through outsourcing. Another way
ITES adds to a company's flexibility is that it may focus on its core strengths
without being burdened by bureaucratic limitations.

B. Back Office Services

Back office services are those which provide business functions related to
administration and are made up of non-client-facing support personnel. The term
back office originally meant the portion of the office where employees don’t directly
interact with customers. Back office processes are ideal for outsourcing,
particularly offshoring, because the work is not considered a core competency and
can be successfully completed from a remote location. Back office BPO benefits
include cost reduction on labor, overhead, and rent, increased productivity, and
access to skilled manpower that the local labor force might lacks.

Great back office support can help the business grow to the next level
because it drives nearly half of total business operations. Back office support, like
front office support, is regarded as the business's backbone because it is extremely
crucial to every organization. Outsourcing all back office support functions to a
reputable organization is one of the best ways to manage them smoothly. As a
result, businesses can concentrate on core business operations and manage them
effectively. It is critical to concentrate on product development, marketing, and
sales in order to gain a competitive advantage in the market in terms of profitability
and customer acquisition.

Back-office services in a BPO include:

a) Human Resources

HR BPO is the process of outsourcing HR functions to qualified HR BPO

providers. These providers will handle the HR services that the firm choose to
outsource, allowing them to have more time to focus on their core business
activities.  The tasks included in the services are high-volume recruitment, payroll
and benefits administration, creating and executing training programs. External
agencies (Recruiting Process Outsourcing vendors) can help businesses with the
entire process. These specialized RPOs can assist the company in streamlining the
hiring process by scanning resumes, conducting interviews, and shortlisting
applicants. Aside from recruiting, HR BPO vendors can train new hires to help
them integrate more quickly. Firms can also hire vendors to help with legal tasks
like filing taxes and managing and resolving payroll issues.

Moreover, HRO providers can assist businesses in managing their taxes and
payroll by paying employee wages, benefits, and any taxes, submitting taxes and
other papers with authorities, settling employee salary, benefits, and tax
difficulties. HR BPO providers can also take over the firm's complete HR process. 
They will create your business strategy, outlining how a company should handle
the complete HR process. These programs cover all aspect of HR delivery strategy,
from employee benefits administration to legal compliance. This saves the firm from
trouble of conceptualizing and implementing everything on their own.

b) Finance and Accounting

Finance and Accounting BPO service providers are consulting organizations that
provide end-to-end services to streamline, standardize, and automate fundamental
business operations. In the case of F&A BPO, they are essential business
operations centered on financial planning, Accounts Receivable and Accounts
Payable workflows, and other General Ledger tasks and analysis. Moreover, In
difficult economic circumstances, managing a Finance department in-house may
become increasingly expensive, making outsourcing the innovative, cost-saving,
scalable solution.
 Hiring a business process outsourcing provider to manage non-core company
activities is not a novel idea, but it has been greeted with reluctance due to
concerns about high prices, potential loss of confidentiality, and loss of control.
Outsourcing financial accounting for firms may relieve business owners of heavy
fixed expenses, provide valuable advice from industry specialists, provide up-to-
date financial data, and enable them more control over their operations.    
Outsourced solutions will always be competitive because they have access to global
talent. BPO has combined quality with low-cost, allowing the firms to engage
remote specialists who can provide more value for less money. Every private equity
firm's major concern is ROI, therefore lowering expenses is a need, firms may focus
on efficiency and profit by offloading the duty of handling their finance and
accounting to a BPO partner, while leaving the tedious and repetitive
responsibilities of accounting to BPO.

c) Data Entry

A company's database contains crucial information that is required in engaging

with consumers, offering better service, and making critical business decisions. In
fact, 93 percent of businesses feel that data is critical to marketing success.
Outsourcing data entry is a low-cost and efficient strategy to expand your business.
A data entry job is tedious and time-consuming.  Outsourcing these tasks can save
the businesses their time and money. Outsourcing data entry services would also
allow workers to focus more on company's core competencies.

Outsourcing might help the company achieve better data management and
storage. As a result, while making judgments, the data presented would be logical,
easily accessible, and indexed. While outsourcing data entry tasks, the offshore
team that is handling the work has expertise with a range of data entry projects. As
a result, they are extensively trained on the best possible methods and techniques
for dealing with mistakes. As a result, they attempt to create quality-based outputs
through decreasing mistakes.

Statutory Laws and Compliance with Regulatory Bodies

Legal and Regulatory Restrictions on Outsourcing

 Articles 106 to 109 of the Labour Code and its implementing rules,
Department of Labour and Employment (DOLE) Department Order No 174 series
("DO 174") of 2017, set out the rules for contracting or outsourcing, including the
rights and obligations of the parties to the arrangement, as well as limitations on
the exercise of such rights.

DO 174, which revised the Rules Implementing Articles 106 to 109 of the
Labour Code, took effect on 3 April 2017 and replaced Department Order No 18-A,
which had previously controlled contractual arrangements in the Philippines. DO
174 refers to "an arrangement in which a customer agrees to put out or farm out
with a contractor or subcontractor the performance or completion of a specific job,
work, or service within a definite or predetermined period, regardless of whether
such job, work, or service is to be performed or completed within or outside the
premises of the principal."

This entails a trilateral relationship among:

 The primary (or client) who chose to outsource a project, work, or service
to a contractor;
 The contractor (or provider) who takes on the task of doing a project,
work, or service; and
 The contractor's personnel who complete the project, work, or service

Implied Terms

Parties have the freedom to establish stipulations and arrangements

regarding provisions, terms, and conditions, however, it must not be in contrary to
law, morals, good customs, public order or public policy. Furthermore, the positive
law also pertains to Article 109 of the Labour Code and Section 9 of DO 174 which
governs the contracts and restrict the parties' relationships, this shall also be
written in the contract.

Scope of DO 174

DO 174 does not apply to certain critical industries. The DOLE released
DOLE Department Circular No. 1, series of 2017, on June 9, 2017, clarifying the
non-applicability of DO 174 to specific sectors and contractual agreements. DO 174
does not include information technology-enabled services including a whole or
specialized business process, such as:

 Business or knowledge process outsourcing (including call centre

activities);
 Legal process outsourcing;
 IT infrastructure outsourcing;
 Application development;
 Hardware and/or software support;
 Medical transcription;
 Animation services; or
 Back office support.
 In a Labor Code-governed contractual agreement, there is no employer-
employee relationship between the client and the provider's employees, as long as
the provider obeys the law, he is deemed as a valid independent contractor.

A contracting agreement is regarded legal if and only if the following

conditions are met:

 The contractor is registered in compliance with current regulations.

 The contractor or subcontractor is working on a specific project. Any
autonomous firm that agrees to do the job or activity done on one's own
initiative and under one's own supervision method and manner;
 The contractor or subcontractor has significant funds to invest to carry out
the work delegated by the principal on its behalf, technique and method, as
well as investment in the form of tools, machinery, equipment, and
supervision
 In doing the outsourced task, except from the result thereto, the contractor
or subcontractor is free from the contractor or subcontractor's control
and/or direction of the principal in all things pertaining to the performance
of the work.
 The service agreement assures that all of the contractor's workers have the
same rights and benefits or subcontractor in accordance with labor laws.\

Contractual connections such as sales, leases, transportation, growing/grower

ship, toll manufacture, management, operation, and maintenance are also
excluded from the execution of DO 174.  Moreover, it also excludes the contracting-
out of tasks or works to a professional or an individual with specialized abilities
and qualities who execute the job or work for the principal. DO 174 is also
inapplicable to the construction industry, private security firms and bank because
these enterprises are governed by distinct issuances.

Industry-Specific Restrictions

Security Services

The Department of Labor issued Department Order No. 150-16, a

series of orders "Revised Guidelines Governing the Employment and Working
Conditions of Security Guards and Similar Personnel in the Private Security
Industry," published in 2001. This is true for private security firms and their
owners. This was given to guarantee that private security personnel's rights
meet the minimal benefits required by law.

Construction Services
• Republic Act No 4566 or the Contractors’ License Law and its
implementing rules;
 • DOLE Department Order No 19, series of 1993 (Guidelines Governing
the Employment of Workers in the Construction Industry);
• DOLE Department Order No 13, series of 1998 (Guidelines Governing
the Occupational Safety and Health in the Construction Industry);
and
• DOLE-DPWH-DILG-DTI and PCAB Memorandum of Agreement-Joint
Administrative Order No 1, series of 2011 (on co-ordination and
harmonisation of policies and programmes on occupational safety and
health in the construction industry)

Banking Functions

The Manual of Regulation for Banks (MORB) of the Central Bank of

the Philippines (commonly known as Bangko Sentral ng Pilipinas or BSP)
prohibits the outsourcing of inherent banking services including: 

• collecting deposits from the general people;

• the provision of loans and the expansion of other credit risks;
• risk exposure management; and
• general administration

MORB permits the outsourcing of banking tasks to third parties or

related organizations (ie, SSCs), provided that proper processes and
information systems are in place to detect and manage operational risks
associated with the outsourced activities. Banking functions include:

• printing of bank loan statements and other non-deposit records

• Forms for banks and promotional materials
• credit investigation and collection
• processing of export, import and other trading transactions
transfer agent services for debt and equity securities
• property evaluation
• services for property management
• courier, messenger, and postal services
• vehicle service contracts
• security guard services
• cleaning and maintenance services
• any other activity that the Monetary Board deems appropriate.

Legal or Regulatory Restrictions on Data Processing or Data Security

One of the business processes that may be outsource is data entry, it is

important to know the regulations and laws governing this matter, especially that it
includes personal and private information. The Data Privacy Act of 2012 (DPA) and
its Implementing Rules and Regulations (IRR) govern the collecting and processing
of personal data by any natural or juridical entity in the government or commercial
sector, acting as either a personal information controller or personal information
processor.
Republic Act No 10173 or the Data Privacy Act of 2012 (DPA) and its
Implementing Rules and Regulations (IRR) require that the controller of personal
information is responsible for personal information under its control or custody,
including information transmitted to a third party for processing, whether locally or
abroad. Personal information controllers and personal information processors must
adopt reasonable and suitable organizational, physical, and technological security
measures for data protection, according to Section 25 of the IRR of the DPA.
The DPA sanctions imprisonment and a punishment for prohibited conduct
such as illegal processing of personal information, negligent access to personal
information, incorrect disposal of personal information, and processing of personal
information for unlawful purposes. Penalties for Violations of Such Laws includes
imprisonment ranging from one year to six years and a fine ranging from PHP
500,000 to PHP 2 million. Furthermore, a combination of multiple violations
include imprisonment ranging from three years to six years and a fine of not less
than PHP1 million but not more than PHP2 million.

Customer Protections

The "customer" in an outsourcing arrangement is the principal with whom

the contractor (or supplier) has a contract in this jurisdiction. Contractual
safeguards for the customer in an outsourcing arrangement include compliance
with labor and social legislation, such as wages and benefits for the supplier's
employees.
Article 108 of the Labor Code requires the supplier to provide a bond equal
to the cost of labor under contract, with the understanding that the bond will
answer for the employees' wages if the supplier fails to pay them.

Termination

The customer and the supplier may establish a stipulation regarding the
termination of the service. However, according to Section 13 of DO 174, in the case
of termination of employment caused by the pre-termination of the service
agreement that is not due to authorized causes under Article 298 of the Labour
Code, the right of the supplier's employees to unpaid wages and other benefits,
including unremitted mandatory contributions, shall be borne by the party at fault,
without prejudice to the parties' solidary liability as may be provided by law.

Liability

When a person is injured as a result of a breach of contract or a legal

invasion of their rights, they have the right to recover damages, which are monetary
compensation, recompense, or satisfaction for the injury suffered. The injured
party is entitled to damages that reasonably arise naturally from the breach of
contract and were reasonably anticipated by both parties at the time the contract
was entered into as the likely result of the breach. Moreover, the Supreme Court
has recognized that when a juridical person's good character is damaged, resulting
in social humiliation, moral damages may be granted. In other words, a company
or other legal organization can be an injured party in a defamation action and
collect moral damages.
The courts may award various types of damages, including Actual or
compensatory damages, Moral damages, Nominal damages, temperate damages,
Liquidated damages and exemplary or corrective damages.

Rules Governing Employee Transfers

In the context of outsourcing, DO 174 states that if the employee is

terminated due to the expiration of the service agreement or the completion of the
phase of the job or work for which the employee is engaged, the employee may
choose to wait three months before being reassigned or transferred to another
principal or customer. If the provider fails to supply new employment, the employee
is entitled to receive separation benefits as specified by law or the service
agreement.
Other illegal kinds of employment agreements are forbidden under Section 6
of DO 174 because they violate the law or public policy. In this sense, if the
transfer of personnel was done to bypass workers' entitlement to security of tenure
or their right to self-organization, it may be considered an illegal kind of
employment arrangement under DO 174.
When employees seek to move to another outsourcing company, the new
employer need resignations from the prior employer as well as clearance from the
previous employer before admitting the new employees. There must be a genuine
separation from the previous employer and an approved offer of employment with
the new company in these types of transfers.

Asset Transfer Terms

The requirements for the transfer of assets involved in outsourcing

transactions are comparable to those of conventional commercial industries. As a
result, when assets are transferred from one entity to another through a sale, the
Civil Code's sales requirements apply.
In this kind of transfer, before executing a Deed of Absolute Sale, a Contract
to Sell is first executed with criteria to be met. Following that, the parties sign and
have the Deed of Absolute Sale notarized. However, if the transferor is registered
with the Philippine Economic Zone Authority (PEZA), a letter of authorization from
PEZA is required before the sale can take place.
A capital gains tax must be paid on capital assets, or assets that are
normally not employed in business. In the case of ordinary assets, the income will
be considered part of the normal company income and would be liable to corporate
income tax. A documentary stamp tax must also be paid at the time the
instruments transferring assets are executed.

In addition to the capital gains tax, the local transfer tax shall be paid to the
local government unit when selling land. Tax clearances from the Bureau of
Internal Revenue (BIR) and the City Treasurer's Office, as well as a certificate
authorizing registration from BIR, are obtained prior to registration with the
Registry of Deeds.