Outsourcing and Accounting

When speaking about the issue of accounting firms outsourcing, first they must look at reasons why an accounting firm would need to outsource in the first place. According to CPA Trendlines, there's seven main reasons why an accounting firm would need to outsource. The first reason is because the accounting profession is aging. This means that lots of of those who are currently employed in the accounting field are getting older and are planning to retire. This then brings in the demand of a fresh, new set of people to take over these positions. The second reason is to outsource the less profitable work. When firms do this, they can spend more time and resources are those services that clients notice more, such as consulting work. The third reason why accounting firms outsource is because it makes 'just in time' hiring simpler. What this means is that lots of (if not all) accounting firms hire additional people in the work of tax season. Also, lots of of the full time staff get overworked and this might lead to a higher turnover. With outsourcing, accounting firms leave the 'just in time' hiring to those outsourcing firms. This is much simpler on the accounting firms because in lieu of taking the time of hiring lots of new staff members, they only must hire outsourcing firm. The fourth reason why outsourcing is becoming popular with accounting firms is because of the necessity of everything being digital, it forces standardization. These means firms examine processes more closely, and they can make sure everything is exact with the standards. This is thought about a hidden benefit. The third reason is because their growth is virtual and not physical, firms can take on more clients and not must expand their physical space, such as new facilities, computers, and staff. The second reason why outsourcing is popular with accounting firms is because the turn around time is faster. In places that work is outsourced, like India, can be ten hours ahead of time here in the United States. This means that work that is sent out at the finish of the work day can be returned by the beginning of the next work day. Finally, outsourcing is cheaper than doing the same work here at home. Work that could cost between $20 - $25 U.S. dollars an hour here in the United States would only cost between $10 - $12 U.S. dollars if outsourced. Also firms can avoid things such as, payroll taxes, sick pay, holiday time, benefits, and space and equipment costs. It is common knowledge that in the accounting profession, there's lots of rules and regulations. How is it feasible that outsourcing can occur and stay with the standards that are already set up? Next, they focus on Sarbanes-Oxley Act of 2002 and the way it impacts the outsourcing of accounting.

In today's society, outsourcing is a common business practice. Lots of businesses have begun outsourcing, even accounting firms. In this paper, reasons why accounting firms would need to outsource will be discussed. Then, it will discuss how the Sarbanes-Oxley Act of 2002 (SOX) impacts the issue of outsourcing. Finally, a fast look at a Giant accounting firm who has taken the chance to outsource.

The Sarbanes - Oxley Act of 2002 (or SOX) is U.S. federal law that set new or enhanced accounting rules and standards for public accounting firms and other types of businesses. The impact of SOX and outsourcing are discussed in Paul Cervantes news story "Sarbanes-Oxley and the Outsourcing of Accounting". The implementation of SOX first made firms hesitate on what they would outsource and what they would keep. Because SOX made company profits go down and capital increase, outsourcing accounting related functions are a great way companies could reduce costs. Accounting firms are examples of firms that look to outsource. Deloitte is an example of an accounting firm that has begun outsourcing. Deloitte partnered with Mastek to encourage companies to outsource business practices, to India. Outsourcing allows Deloitte to work with finance professionals with an established safe service, and also it also decreases work turnaround by 40%. Although outsourcing looks like an simple solution to the implication of SOX there's some obstacles, in Sections 302 and 404. Section 302 states that company and managing executives are responsible for material weakness in internal controls of the company. Section 302 also states that these executives must document fraud to shareholders. Section 404 requires that management evaluate the internal controls of the company in every quarterly or yearly document. These sections make if difficult for companies to outsource accounting related services because although these services are outsourced, they are thought about to be an extended portion of the company. That means that the company would to ultimately liable, not the service provider. Even with the implementation of SOX, this does not cease accounting firms outsourcing other services.

KPMG is of the largest accounting firms in the world, and they have began to make use of outsourcing. According to Sarah Johnson's news story, "What KPMG's Lastest Purchase Means" KPMG had bought EquaTerra. EquaTerra is an outsourcing advisory firm. EquaTerra job is to help corporate customers with an outsourcing strategy. This means that they help them connect with customers and complete the agreements. The advisory firm will own the terms and conditions and the intellectual property. Now, KPMG will be able to close outsourcing deals and agreements, without and outside advisor. Overall, this combine will provide clients with a full life cycle of capabilities.

As they can see, outsourcing is a business practice of the future. Not only does it cut costs, but it also increases productivity. Even with the implementation of SOX, companies & firms are still taking advantage of outsourcing opportunities. What they must look forward to in the future is how much firms & companies are willing to outsource & what kind of new legal obligations might be enforced on them. This will continue to be a current issue in the future.