Cognizant buys captive service unit to expand BPO capabilities

An article at Business-Standard.com discusses a recent purchase by Indian BPO company Cognizant.  Cognizant recently purchased the India-based captive service unit of UBS.  As part of the deal, Cognizant and UBS entered into a 5-year service agreement to support UBS' back-office processes.  Estimated revenue over the 5-year period is $442 million USD.

From Cognizant's perspective, this purchase expands their BPO capabilities while providing a guaranteed revenue stream.  According to the the article, "The acquisition will deepen Cognizant’s financial services’ domain knowledge and enhance its capabilities to provide integrated services across consulting and technology."

From UBS' perspective, the deal frees UBS from managing processes that they believe can be better managed by a 3rd party.  According to the article, "For UBS, the sale of the India Service Centre marks the next stage in the development of the UBS offshoring and outsourcing strategy. In recent years, the availability and maturity of third-party outsourced services has grown significantly. UBS has therefore decided to adopt a buy rather than a build strategy for its outsourcing needs, said the company in a statement. This will take advantage of the scale and expertise of third parties to improve efficiency, while reducing costs and increasing flexibility."

An interesting note is that UBS' India Service Center provided traditional support activities such as IT, but it also provided capabilities around research and analysis, something that has traditionally been held onshore but is increasingly seen as an appropriate function to offshore or even outsource.

Here's the link to the full article:

http://www.business-standard.com/india/news/cognizant-buys-ubs-captive-unit-for-75-mn/373422/

Amending AS2 for Efficient Audits

Ever since Sarbanes-Oxley legislation was passed, auditing firms and their corporate clients have been trying to figure out the standard of proof required for the testing of internal controls.  As you might expect, auditing firms like to play it safe.  Consequently, they have used the ambiguity of Auditing Standard #2, which requires the testing of internal controls, to require a high standard of proof before they were willing to sign off on management's opinion of internal controls.  Clients, on the other hand, have an interest in keeping compliance costs as low as possible.  This sets up a natural conflict between clients and their auditors.

Apparently the PCAOB has gotten the message.  They're looking at ways to reduce the compliance effort while still assessing the strength of key controls.  An article at CFO.com entitled Under Fire: Auditing Standard No. 2 has the details. 

Here's an excerpt from the article:

PCAOB board member Daniel Goelzer, who spoke at a meeting of the National Association of Corporate Directors in Minneapolis on April 27, said the PCAOB will focus on uncovering control weaknesses that are likely to lead to material misstatements rather than matters that are trivial, he said. "That may well require amending AS No. 2." Goelzer did not describe how the auditing standard could be changed, but he stated that the PCAOB will be more aggressive in ensuring that audits of internal controls by outside auditors are performed efficiently.