International Accounting – Outsourcing

International Accounting

Globalization is defined as the process of interaction and integration among the people, companies, and governments of different nations. The world is becoming more and more interconnected through globalization. Businesses are taking advantage and are generating higher profits through different opportunities presented by globalization. One of the most popular opportunities is outsourcing. Outsourcing is the delegation of some tasks or objectives to some organizational segments that belong to other entities (Arsenie-Samoil, 788). Outsourcing offers many benefits when done correctly. Many times, hiring an outsider provider of services will be cheaper than hiring a full time, in-house employee. Typical expenses like benefits, insurance, and paid-off are not paid, saving the employer money. Outsourcing also saves time because instead of employees completing trivial tasks, they can focus on more important responsibilities (Arsenie-Samoil, 791). However, there is also drawbacks to outsourcing work. Language barriers make it tougher to communicate effectively with workers. Outsourcing also means having less control over operations because there is little to no face to face interaction. The last main concern of outsourcing is the risk of security by providing business information to outsiders. As the world becomes more interconnected, it is becoming easier to find trustworthy, qualified workers in foreign countries that work for cheaper wages (Arsenie-Samoil, 791). The accounting and finance industry has been at the front of this trend, and it is not only the United States involved, but the whole world. A 2010 report showed that accounting and finance made up 10% of the worldwide business process outsourcing market, which was over $975 billion in total (Khadem 2012).

One country that has embraced the accounting outsourcing trend is Australia. CPA Australia surveyed 227 of its members in 2010 and their results showed that 11.7% of employers sent accounting/finance work offshore. Adam Johnston and Michael Adams operate an accounting firm in Australia which has been successful in the past couple years. They were able to gain 15 new clients and increase fees by 30% during the year 2012. This was very impressive considering the economic climate they were dealing with at the time and they credited their success to outsourcing. Using Bank Office Shared Services (BOSS), Johnston and Adams located accountants looking for work, mainly in India and the Philippines. Now, they have a personal, fully qualified accountant located in India. Using cloud services, an accountant in India can have access to servers and software located in Australia. Another success story from Australia is Mark Cottle, the director of the startup Frontline Accounting. Using a similar service, Cottle found a CPA located in Manila. Cottle says he can employ 7 or 8 CPAs in Manila for the same price it would take him to hire 1 in Australia (Khadem 2012).

The United States is also outsourcing accounting work offshores, mainly to India. According to M.G. Fennema, an accounting professor at Florida State University, 5% of US audit work in 2012 was done in India. This is up from an estimated 1%-2% in 2007. The big 4 (Deloitte, KPMG, Ernst&Young, and Pricewaterhouse Coopers) all outsource work to India (Aubin 2012). In 2012, the 4 of them combined to employ 22,000 workers in India. It is a popular location to outsource to because workers there are paid much less than workers in the US. In India, the starting salary of an accountant is somewhere around $10,000, while the same employee in the US would make somewhere around 5 times that (Aubin 2012). While some may be concerned the quality of work drops when it is outsourced offshore, the big 4 firms all ensure that offshore work meets the same quality as domestic work and employees receive consistent training to the employees in the US (Aubin 2012).

The practice of outsourcing is more widespread than ever, but a company’s decision to outsource should still be very well planned. Management should thoroughly understand the practices and procedures of their client. However, with technology and innovation constantly improving, businesses can now connect to India and other regions in a blink of an eye. This allows the search for employees to be easier and more efficient than ever before. When done correctly, outsourcing can be very valuable to businesses in many industries, especially accounting.