1. Business Risk - ● A change in the scope of services at the customer’s request.

● A change in the legal environment that imposes new conditions, costs, or

restrictions upon the manner of providing the services, how the services are
delivered to the enterprise customer, or the right of the enterprise customer to
purchase such services in its home country.
● A change in the volume of the services being consumed.
● An early termination occurs before the service provider has earned out the
sunken costs of pursuing and capturing the contract opportunity and paid the
unpaid start-up and transition costs.
● There is a merger and acquisition risk that an enterprise or a service
provider might change owners. Service providers need to provide assurances
that a change of control, such as in a merger or restructuring, will not impair
the competitive position of the enterprise customers.

● arise as soon as the parties agree upon the service terms, conditions, and
. Price Risk pricing. For the service provider, the “pricing risk” is that the benchmarking
process or other price adjustment will result in a loss or significant reduction
in profitability and an inability to recapture the investment made in capturing
and transitioning an enterprise customer to the outsourced business process
platform.

3. Political Risk ● represents the degree to which social and governmental environments may
change in the future. This risk may manifest itself in events over which a
government has no control – such as riots or new elections. Other events
may be caused by a government, such as an embargo on imports or exports,
tariff increases, or new prohibitions on transactions with specific countries.

4. Process Risk ● the possibility that the processes used to deliver a service may change
dramatically during the term of a sourcing arrangement. This can be
favorable or unfavorable. Since processes will likely change, the parties need
to identify the significant processes that form the basis of the bargain and
that, if impacted by a change, could justify a renegotiation, termination,
repricing expansion, or contraction of the scope of service.

5. Human Capital Risk ● arises from the risk that an enterprise’s investment in human resources might
lose value due to the departure of individuals or groups necessary to the
future success of the enterprise. Human capital has its greatest value at the
level of senior management, but as executives, they can only achieve the
enterprise’s mission through others.

● Enterprise viability depends on maintaining the goodwill of the enterprise

6. Brand/Reputation brand. Damage to reputation might never be recovered, or might only be
Risk recovered at great expense and distraction. Reputational risk is especially
significant in such customer-facing “front office” services. However, even
non-voice interactions with customers can have the same impact on an
enterprise’s goodwill.

7. Systemic Risk ● Regulators and governments focus on the risks to the systems that support
local and global economies. A systemic risk affects all participants in an
economic sector or industry.

8. Accessibility Risk, ● Supply chain management requires careful attention to the risks of loss of
Business Continuity, accessibility to the service provider, loss of the service provider’s services,
Security Risk and impairments to the security of confidential, proprietary, trade secret,
private, and protected information. Any one of these risks could prove fatal or
severe damage to the customer.
10. Technology Risk ● refers to the risk that an entity faces due to changes in technology or the
obsolescence of existing technology. An entity operating in the BPO Industry,
in general, invests huge sums of money in the purchase of technology. In the
event of a change in technology, the investment made by the entity becomes
futile. Technology could be in the form of purchase/ creation of software or
hardware.

True A BPO company is a type of outsourcing wherein the company is contracted to

carry-out one or more business functions.

true Revenues in a BPO industry are based on service contracts with clients that may
either be project based or period based

false IT audit is not a concern in auditing a BPO Company.

true In a BPO industry, there is a risk of litigation because it is manpower heavy which
may result into employee complaints and investigations resulting to cases filed with
DOLE.

true Salaries and statutory requirements is one of audit concerns in a BPO industry
because it is manpower heavy.

FINANCIAL STATEMENTS
- Statement of Financial Position
- Statement of Profit and Loss and Other Comprehensive Income
- Statement of Changes in Equity
- Statement of Cash Flows
- Notes to the Financial Statements

true Transactions in foreign currencies are recorded in Philippine peso based on the
exchange rates prevailing at the transaction dates.

true All items of PPE and capital work in progress, are stated at cost, net of accumulated
depreciation and accumulated impairment losses, if any.

false/.. exceeds An impairment loss is recognized wherever the carrying amount of an asset is lower
than its recoverable amount.

False. Exp as incurred for software products, Research costs are capitalized

true Software product development costs incurred subsequent to the achievement of

technical feasibility are not material and are expensed as incurred.

Revenue It is recognized upon transfer of control of promised services to customers in

an amount that reflects the consideration that the Company expects to receive in
exchange for those services.

Contract balances represents the Company's rights to an amount of consideration that is

unconditional.

true -Revenue in excess of billing is classified as contract asset

-Billing in excess of revenue is classified as contract liability

Contract assets are classified as unbilled receivables when there is unconditional right to
receive cash, and only passage of time is required, as per contractual terms.

Unbilled revenues are classified as non-financial asset if the contractual right to consideration is
dependent on completion of contractual milestones.

Deferred contract are incremental costs of obtaining a contract which are recognized as assets and
costs amortized over the benefit period.
Contingent liabilities not recognized in the financial statements but are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote.

Contingent assets not recognized in the financial statements but are disclosed when an inflow of
economic benefits is probable.

provisions are recognized when the Company has a present obligation, either legal or
constructive, as a result of a past event, it is probable that the Company will be
required to settle the obligation through an outflow of resources embodying
economic benefits, and the amount of the obligation can be estimated reliably.

ASSETS

Unbilled Service Fees receivables in which all conditions based on the contracts are already met or
performed however, the billings are not yet issued to the customers.

Software Cost an intangible asset carried at cost less accumulated amortization and any
impairment in value.

Contract Assets the right to consideration in exchange for goods or services transferred to the
customer.

Due from Government amount of money owed to the company by a government agency for services
Agency rendered or contracts fulfilled.

LIABILITIES

Contract liabilities the obligation to transfer goods or services to a customer for which the Company has
received consideration or for which an amount of consideration is due from the
customer based on the advance billing recognized under trade receivable.

Due to Related amount that company owes for the services rendered by its related parties and the
Parties arrangements made with them.

Due to Government Includes taxes, social security contribution and other regulatory obligation.
Agency

REVENUES

Communication charge for the company’s internet service provider and telephone bills related to
links its operation.

Service Fees for Call Centers, fees arise from inbound calls and outbound calls; for BPOs
companies that also design and develop software, fees will arise from software
development services.

Due to Related The agreement between the company and its related parties shall continue
Parties until terminated by either party in case the other party is in breach of the terms of
the agreement or at the option of the counterparty upon prior written notice.
foreign exchange affected by the increase and decrease in the value of company’s home currency
gain or losses when converting foreign currencies back into the company’s home currency. It can
also have tax implications.

significant operating costs

Lease Expenses could be of the nature of leasing of office building for work space, or leasing of
assets for official purpose or accommodation provided to the employees.

Communication represents expenses in the nature of leased line charges and is considered
Expenses` significant in comparison to other costs.

Recruitment and These expenses are also considered to be high considering the high attrition and
Training Expenses turnover ratio of the industry and its growth over the past few years.

Sub-contracting Some BPOs sub-contract a part of their operations to an external party. This can be
Expenses done so only if agreed to by the parties.

Logistics Considering the labor-Intensive nature of the BPO Industry apart from odd working
hours, logistics plays an extremely important role in the entity. Most
employees use the logistics provided by the entity to commute to work place.

FINANCIAL REPORTING RISKS

Market risk: is the risks that the fair value of the future cash flows of a financial instrument will
fluctuate because of changes in market prices. Market risks mainly comprises of
foreign currency risks.

Liquidity risk: It implies maintaining sufficient availability of funds to meet obligation when due and
to close out market positions.

Credit Risks: the risks that the counterparty will not meet its obligations under a
financial instrument or customer contract, leading to a financial loss.

An impairment analysis is performed at each reporting date on an individual

basis for major clients.

Steps for registering a BPO company in the Philippines:

1. SEC license to operate
2. Business Permit in the locality where the business is situated
3. Certificate of Registration with the Bureau of Internal Revenue
4. Certificate of Registration with the Social Institutions
5. Securing Philippine Economic Zone Authority (PEZA) Registration
6. Bank account setup (Certificate of Deposit)

Security Exchange Commission (SEC) license to operate process:

1. Submission of online application
2. SEC approval
3. Routing of documents to signatories
4. Payment and Physical submission of hard copies
5. Release of the Certificate. It takes approximately 30 working days to gain an SEC
Certificate.
 The Local Government Unit (LGU) issues the business permit or Mayor’s permit in
the Philippines where your company’s office is located. It is to be noted that business
permits are to be renewed each year otherwise the business will be charged a
25% tariff on the renewal fee with an additional 2% every month.

Process:
1. Submission of Application Form and documents
2. Inspection
3. Assessment of fees
4. Payment
5. Issuance of Business Permit

1. This process takes approximately 30 working days to complete.

Certificate of Registration with the Bureau of Internal Revenue (BIR)

Process:
1. Application of TIN (Taxpayer Identification Number)
2. Secure authorized computation from the officer-in-charge
3. Payment of DSTs (Documentary stamp tax)
4. The request for a Template from an Authorized Printer
5. Submission of documentary Requirements
6. Acceptance of the documentary requirements
7. Release of COR (Certificate of Registration)
8. Release of ATP
9. Stamping of Books of Account

The process takes approximately 14 days.

Securing Philippine Economic Zone Authority (PEZA) Registration

Process:
1. Submission of application documents for pre-screening
2. Payment of the application fee and obtaining an official receipt
3. Submission of truly filled application form along with other required documents
4. Wait for receipt of Board Resolution
5. Submission of pre-registration requirements as stated in Board Resolution
6. Payment of registration fee
7. Sign registration agreement with PEZA
The process takes approximately 21 working days for PEZA registration.

true Compliance is a critical aspect of the BPO industry as it involves handling sensitive
data and information of clients.

compliance refers to adherence to legal, regulatory, and industry�specific requirements.