Posted on: December 3, 2020 Posted by: Charles Johnson Comments: 0

In today’s society, outsourcing is a frequent business practice. Many businesses have begun outsourcing, even accounting firms. Within this paper, the reasons why accounting firms would like to outsource will be discussed. Afterward, it is going to speak about the way the Sarbanes-Oxley Act of 2002 (SOX) affects the issue of outsourcing. Finally, a fast look at a Big Four accounting firm that has taken the chance to outsource.

When speaking about the dilemma of accounting firms outsourcing, first we must examine the reasons why an accounting company would want 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 explanation is that the accounting profession is aging. It follows that many of those that are employed in the accounting area is getting older and intend to retire. This then brings in the requirement for a brand new, new set of people to take over these positions. The second reason is to outsource the profitable work. When firms do this, they can spend more resources and time are the services that clients notice more, like consulting work. The third reason why accounting companies outsource is that it makes just in time’ hiring simpler. What this indicates is that many (if not all) accounting companies hire extra people during tax season. Additionally, lots of full-time staff get overworked and this could cause a higher turnover. With outsourcing, accounting firms leave the just in time’ hiring to all those outsourcing firms. This is a lot easier on the accounting companies because instead of taking the time of hiring several new staff members, they simply hire one outsourcing firm. The fourth reason outsourcing is becoming popular with accounting firms is because of the need for everything being digital, it forces standardization. This means firms examine processes more carefully, and they can ensure everything is accurate with the standards. This is considered a hidden advantage. The third rationale is that their growth is virtual and not physical, firms can take on more customers and not need to expand their physical space, such as new facilities, computers, and employees. The second reason outsourcing is popular with accounting companies is the turnaround time is faster. In places 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 cheaper than doing the same job here at home. Work that may cost between $20 – $25 U.S. bucks an hour in the USA would only cost between $10 – $12 U.S. dollars if outsourced. Also, companies can avoid things like payroll taxes, sick pay, vacation time, benefits, and space and equipment expenses. It is common knowledge that in the accounting profession, there are many rules and regulations. How can it be possible that outsourcing can occur and stay with the standards that are already installed? We focus on the Sarbanes-Oxley Act of 2002 and how it impacts the outsourcing of accounting.

The Sarbanes – Oxley Act of 2002 (or SOX) is a U.S. national 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 article”Sarbanes-Oxley and the Outsourcing of Accounting”. Get a free quote at PEO Canada here. The implementation of SOX first produced firms hesitate on what they would outsource and what they’d maintain. Because SOX made company profits go down and capital increase, outsourcing accounting-related acts are a good way for businesses could reduce costs. Accounting companies are examples of companies that seem to outsource. Deloitte is a good example of an accounting firm that has started outsourcing. Deloitte partnered with Mastek to encourage organizations to outsource business practices, particularly to India. Outsourcing allows Deloitte to work with finance professionals with an established secure service, and also it decreases work turnaround by 40%. Though outsourcing seems like a simple solution to the implication of SOX there are some hurdles, especially in Sections 302 and 404. Section 302 states the business and managing executives are responsible for material weakness in the 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 each quarterly or yearly report. These segments make it hard for companies to outsource accounting-related services because although these solutions are outsourced, they are regarded as an extended portion of the provider. That means that the corporation would to finally responsible, not the service supplier. Despite the implementation of SOX, this doesn’t prevent accounting firms from outsourcing additional services.

KPMG is one of the four largest four accounting firms in the world, and they’ve begun to utilize outsourcing. According to Sarah Johnson’s post, “What KPMG’s Lastest Purchase Means” KPMG had bought EquaTerra. EquaTerra is an outsourcing advisory firm. EquaTerra’s task is to assist corporate customers with an outsourcing plan. This usually means that they help them connect to customers and complete the agreements. The advisory firm will have stipulations and intellectual property. Click here to get a free quote – Now, KPMG will be able to close outsourcing deals and agreements, with no external adviser. Overall, this mix will provide clients with a complete life cycle of capabilities.

As we could see, outsourcing is a business practice of their future. Not only does it cut prices, but it also raises productivity. Even with the implementation of SOX, businesses, and companies are still benefiting from outsourcing opportunities. What we have to appear forward to in the future is how much firms and companies are willing to outsource and what kind of new legal duties may be enforced on them. This will continue to be a very current problem later on.