Importance Of Outsourcing Accounting In A Company In Modern Times

In the present society, outsourcing is a common business practice. Many businesses have begun outsourcing, even accounting firms. In this paper, the reasons why accounting companies would want to outsource will be discussed. Then, it is going to talk about the way the Sarbanes-Oxley Act of 2002 (SOX) affects the issue of outsourcing. Finally, a quick look at a Big Four accounting firm that has taken the opportunity to outsource.

When speaking about the dilemma of accounting companies outsourcing, first we have to examine the reasons why an accounting firm would like to outsource in the first place. According to CPA Trendlines, there are seven main reasons why an accounting company would want to outsource. The first reason is that the accounting profession is aging. This means that many of those that are employed in the accounting area is becoming older and intend to retire. This then contributes to the demand for a brand new set of people to take over these positions. The second reason would be to outsource the profitable work. When firms do this, they can spend more resources and time are the services that customers notice more, like consulting work. The third reason accounting firms outsource is that it creates just in time’ hiring easier. This means is that many (if not all) accounting companies hire additional people during tax season. Also, lots of the full-time employees get overworked and this could cause a greater turnover. With outsourcing, accounting companies leave the just in time’ hiring to all those outsourcing companies. This is a lot simpler for the accounting firms because rather than taking the time of hiring many new staff members, they only have to hire one outsourcing firm. The fourth reason outsourcing is becoming popular with accounting firms is because of the need for all being digital, it forces standardization. This implies companies examine processes more closely, and they can ensure everything is accurate with the criteria. This is regarded as a hidden benefit. The next rationale is that their growth is virtual rather than physical, firms can take on more clients and not have to expand their physical space, such as new facilities, computers, and staff. The next reason outsourcing is a favorite with accounting firms is the turnaround time is faster. In areas that work is outsourced, like India, could be 10 hours beforehand here in the United States. This means that work that is sent out after the workday could be returned by the start of the next workday. Lastly, outsourcing is much cheaper than doing the same work here at home. Work that could cost between $20 – $25 U.S. dollars an hour in the USA would only cost between $10 – $12 U.S. bucks if outsourced. Also, companies can avoid things like payroll taxes, sick pay, vacation time, benefits, and space and equipment expenses. It’s well known that in the accounting profession, there are lots of regulations and rules. How can it be possible that outsourcing may occur and stay with the criteria that are already installed? Next, we concentrate on the Sarbanes-Oxley Act of 2002 and how it affects the outsourcing of accounting at PEO Canada.

The Sarbanes – Oxley Act of 2002 (or SOX) is a U.S. federal law that set new or enhanced accounting rules and regulations for public accounting firms and other types of businesses. The impact of SOX and outsourcing has been discussed in Paul Cervantes’s post”Sarbanes-Oxley and the Outsourcing of Accounting”. The execution of SOX first produced companies hesitate on what they’d outsource and what they would maintain. Since SOX made business profits return and funding increase, outsourcing accounting-related functions are a good way for companies could reduce costs. Accounting firms are examples of companies that look to outsource. Deloitte is an example of an accounting firm that has started outsourcing. Deloitte partnered with Mastek to promote companies to outsource business practices, especially to India. Outsourcing allows Deloitte to work with finance professionals with an established safe service, and also it decreases work turnaround by 40%. Though outsourcing seems to be a simple solution to the implication of SOX there are some obstacles, especially in Sections 302 and 404. Section 302 states the company and managing executives are responsible for material weakness in the internal controls of the company. Section 302 also claims that these executives must report fraud to shareholders. Section 404 requires that management evaluate the internal controls of the company in each quarterly or annual report. These sections make it hard for companies to outsource accounting-related services since although those solutions are outsourced, they are regarded as an extended portion of the provider. That means that the corporation would to finally liable, not the service supplier. Even with the implementation of SOX, this does not stop accounting firms from outsourcing other services.

KPMG is one of the four biggest four accounting firms in the world, and they have started to utilize outsourcing. Following Sarah Johnson’s post, “What KPMG’s Lastest Purchase Means” KPMG had purchased EquaTerra. EquaTerra is an outsourcing advisory firm. EquaTerra’s job is to help corporate clients with an outsourcing plan. This usually means that they help them connect to customers and complete the agreements. The advisory company will have the terms and conditions and intellectual property. Now, KPMG will be able to close outsourcing deals and arrangements, without an outside advisor. In general, this mix provides clients with a complete life cycle of capabilities. 

As we can see, outsourcing is a business practice of their future. Not only does this cut prices, but besides, it increases productivity. Even with the implementation of SOX, businesses, and firms are still taking advantage of outsourcing opportunities. What we need to look forward to later on is how much firms and companies are willing to outsource and what kind of new legal obligations may be enforced on them. This will continue to be a very current issue later on.