Why would an auditor be concerned about outsourcing core activities?

An auditor would be particularly concerned about outsourcing core activities because it risks losing the organization's competitive advantage. When a core function is outsourced, it may result in a dilution of the organization's unique capabilities and strengths, which are essential for maintaining a competitive edge in the market. This is especially crucial for activities that define the organization's value proposition or efficiency.

Outsourcing can lead to dependence on third-party vendors, and if those vendors do not perform at the expected level, it may hinder the organization's ability to innovate or respond quickly to market changes. Moreover, relying on external entities for critical operations can obscure an organization's understanding of its own internal capabilities and may divert focus from developing its unique strengths.

While other factors such as compliance, operational costs, or contract complexities are valid concerns, they serve more as indirect effects of the competitive implications that arise when core functions are outsourced. Disrupting the core capacities tied closely to market success can have far-reaching consequences that an auditor must carefully assess.