When software development is outsourced to a startup company, what should an IS auditor recommend?

When software development is outsourced, ensuring the protection of the organization's interests and assets is crucial. Establishing a source code escrow agreement is essential because it provides a safeguard for the organization should the vendor become unable to continue its operations or fulfill its obligations.

In a source code escrow arrangement, the source code for the software is deposited with a neutral third party. This ensures that if the vendor ceases to deliver services or goes out of business, the organization can access the source code to maintain or develop the software independently. This is particularly important for customized software, where dependencies on a specific vendor can pose risks to ongoing operational continuity.

By having such an agreement, the organization mitigates the risk of being left stranded without access to the software or its underlying code, which could severely impact business processes. This protective measure is vital in vendor relationships, especially with startup companies that may not have a long track record or established presence in the market.