ACCA Advanced Audit and Assurance (AAA) Practice Exam

What does outsourcing refer to in a business context?

1. The use of technology to increase efficiency

2. Hiring external suppliers for products or services

3. Assessing internal operations

4. Conducting employee performance reviews

The correct answer is: Hiring external suppliers for products or services

Outsourcing in a business context refers to the practice of hiring external suppliers to provide goods or services that could be performed in-house. This strategy allows businesses to focus on their core functions while leveraging the expertise, efficiency, and cost-effectiveness of third-party providers. By outsourcing certain operations, firms can potentially reduce costs, access specialized skills, and improve business flexibility and responsiveness. In contrast, the other options do not accurately capture the essence of outsourcing. The use of technology to increase efficiency relates more to automation and system upgrades rather than the employment of external suppliers. Assessing internal operations refers to evaluating the organization's own processes and effectiveness, which is distinctly different from leveraging outside expertise. Conducting employee performance reviews is a human resource function aimed at assessing individual employee performance, again not related to outsourcing practices. Therefore, the concept of hiring external suppliers aligns closely with the definition and strategic goals of outsourcing.