In today’s society, outsourcing is a common business practice. Many businesses have begun outsourcing, even accounting firms. In this paper, reasons why accounting firms would want to outsource will be discussed. Then, it will talk about how the Sarbanes-Oxley Act of 2002 (SOX) impacts the issue of outsourcing. Finally, a quick look at a Big Four accounting firm who has taken the opportunity to outsource. Philippines
When talking about the issue of accounting firms outsourcing, first we must look at reasons why an accounting firm would want to outsource in the first place. According to CPA Trendlines, there are seven main reasons why an accounting firm would want to outsource. The first reason is because the accounting profession is aging. This means that many 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 are able to 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 easier. What this means is that many (if not all) accounting firms hire extra people during tax season. Also, many of the full time staff get overworked and this could lead to a higher turnover. With outsourcing, accounting firms leave the ‘just in time’ hiring to those outsourcing firms. This is much easier on the accounting firms because instead of taking the time of hiring many new staff members, they only have to hire one outsourcing firm. The fourth reason why outsourcing is becoming popular with accounting firms is because of the need of everything being digital, it forces standardization. These means firms examine processes more closely, and they are able to make sure everything is exact with the standards. This is considered a hidden benefit. The third reason is because their growth is virtual and not physical, firms are able to take on more clients and not have to 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 10 hours ahead of time here in the United States. This means that work that is sent out at the end of the work day can be returned by the start of the next work day. Lastly, 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, vacation time, benefits, and space and equipment costs. It is common knowledge that in the accounting profession, there are many rules and regulations. How is it possible that outsourcing can occur and stay with the standards that are already set up? Next, we focus on Sarbanes-Oxley Act of 2002 and how it impacts the outsourcing of accounting.
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 article “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 good 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, particularly to India. Outsourcing allows Deloitte to work with finance professionals with an established safe service, and also it also decreases work turnaround by 40%. Even though outsourcing seems like an easy solution to the implication of SOX there are some obstacles, particularly 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 report fraud to shareholders. Section 404 requires that management assess the internal controls of the company in every quarterly or yearly report. These sections make if difficult for companies to outsource accounting related services because even though these services are outsourced, they are considered 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 stop accounting firms outsourcing other services.