Guide to Onshoring and Offshoring of Accounting Services, Research Paper Example

Executive Summary

Prior to contracting an offshore or near shore accounting services provider, it would be important to ascertain the manner by which they monitor and screen their personnel. It would be effective to ascertain the manner by which a breach in the information system would be administrated. The nature and origin of the potential disputes must be acknowledged; the locations and jurisdictions which will administrate any disputes must be established. The extent of the coverage of the organization’s liability insurance must also be determined. In the case of any issues, the responsibility will rest with the U.S. based service provider. The offshoring and near shoring accounting services frequently apply information protection systems in order to ensure the integrity of information which is maintained in databases in offshore and near shore locations. Many of the proponents of near shoring and offshoring assert that the outsourcing of accounting services increases the efficiency of the accounting firm. It is important that the U.S. based firms provide disclosure to their client of whether third party accounting services concerns are being applied in near shore or offshore locations Alonso (2011), Bragg (1988), Cattanco, (2010), Chatfield (2014), Coles (1997), Collins (2006), Contractor, (2011), Corbett (2004), Davies (2004), Epstein (2009), Jones ( 2006), Jones ( 2012), Kamyabi (2011), Kobayachi – Hillary (2008), Mellewigt (2009), Monks (2011), Nilsen (2006), Stenzel (2003) Vang (2006),Winkler (2009) and Woodside (2008).

Introduction

The novel accounting service concepts and products have the capacity of altering the commercial culture of the nation with breathtaking speed. A decade ago there had been relatively scarce CPA concerns which presented business appraisals, support for litigation proceedings ort planning individual and organizational finances for the retirement of one of its administrative personnel. Notwithstanding, these services have become commonly abundant today.  The a characteristic of the application of state of the art concepts which include corporate consolidation , cross marketing techniques and flextime have become parts of the present business culture.  As the progresses of technology facilitate the ability of transferring large amounts of information over vast distances, another technological invention presents itself.

The technological invention which will be explored in this research is defined as the outsourcing and offshoring of financial accounting and tax preparation accounting services. . In the event that the accounting work remains continental, the endeavor is described as near shoring. The assertive and adverse qualities of offshoring, outsourcing and near shoring with regards to accounting services will be explored from the perspectives of  Alonso (2011), Bragg (1988), Cattanco, (2010), Chatfield (2014), Coles (1997), Collins (2006), Contractor, (2011), Corbett (2004), Davies (2004), Epstein (2009), Jones ( 2006), Jones ( 2012), Kamyabi ( 2011),  Kobayachi – Hillary (2008), Mellewigt (2009), Monks (2011), Nilsen (2006), Stenzel (2003) Vang (2006),Winkler (2009) and Woodside (2008).

Offshoring

In a commercial enterprise engaging in the practice of offshoring, a portion of the organizational functions are contracted overseas. The activity of offshoring is normally performed in order to diminish overhead expenses and to accrue costs. Offshoring and near shoring may seem very similar, there are  important differences that commercial enterprises should keep in mind when contracting segments of the organizational functions to overseas concern (Mellewigt 83; Coles 221; Winkler 4)

Outsourcing of Accounting Services

The outsourcing of accounting services is not as complicated as it seems to be. Personnel of a CPA organization reviews and scans documents which pertain to a client. These documents include the relevant K- 1, 1099, and W- 2 forms. These documents are subsequently scanned and inserted into a zip file in the network. The previous tax year’s zip file is forwarded to the outsourcing purveyor of accounting services. The accounting services purveyor to which all of the information is being forwarded may be located in the United States, Canada, Mexico, or the Caribbean (Vang 55).

All that must be done by the accounting services purveyor is to conduct an uploading of the pertinent files and forward them to the appropriate U.S. based information center.  The documents are accessed by workers who are offshore or near shore, than the documents are sequenced into a web based file and prepared. In the event that the outsourcer organization is located in India, the chartered accounting personnel who would apply the U.S. based organization’s tax calculating software programs would sequence the returns into a web based file and prepare the returns. The U.S. based firm would review the documents which had been prepared by the offshore or near shore accounting organization and make any amendments or recommendations for amendments (Davies 37).

Small and medium size organizations participate as important generators of employment and revenue in all economies. The small and medium sized organizations in the United States are the primary source of employment and economic diversification. Notwithstanding, many of the small and medium sized organizations are not able to remain competitive due to internal resource deficiencies.  A resource based perspective debates that smaller sized organizations are more susceptible than larger sized organizations as a result of the deficiency of resources which are essential for economic viability and growth (Bragg 130; Coles 221; Corbett 84).

The smaller sized organizations which participate in the global supply chains of larger organizations frequently carry the majority of the difficulties which are created by the larger organizations. It is true that the smaller sized organizations are addressed with resource deficiencies and competitive stresses. As a result, they are compelled to decrease their operating expenses and to formulate novel opportunities by means of the optimal application of external resources. The outsourcing of a variety of internal business functions which includes accounting services is one of the optimal methods which can be applied to decrease expenses and formulate opportunities for enhanced development. The characteristics of outsourcing review the comprehensive enhancement of the organization’s functions, it seeks s to maximize competitive advantages which will increase profits and reduce expenses (Cattanco 269; Collins 263; Contractor 69; Davies 37).  .

The qualities of outsourcing are value adding services which create additional value by means of the elevated quality of services which are accessible from the outside sources. Considering this aspect, the outsourcing of accounting responsibilities is a choice for the small and medium sized organizations in order to maintain a competitive advantage in the commercial environment. The nature of outsourcing decreases the economic burdens which are experienced by small and medium sized organizations.  The small and medium sized enterprises are deficient in the required resources and skills in order to supply accounting services in house. The access to the increased expertise and the particular knowledge of CPAs can be a primary motivation for outsourcing accounting services (Kobayashi- Hillary 143; Mellewigt 83; Winkler 3).

The external accountants which are located in near shore of offshore locations can facilitate the small and medium sized organization to function in the competitive commercial environment while implementing enhanced operations considerations in order to ensure their long term viability. In addition, in the complicated situations, the near shore and offshore accounting firms to whom the accounting services are contracted have the capacity of being in a specialized position for providing advice and facilitating the small and medium organizations in attaining their business goals. The theory of transaction cost economics has evolved into being a conventional foundation in today’s business environment. The theory of transaction cost economics details the causal attributes of certain small and medium sized organizations outsourcing their accounting endeavors to offshore and near shore accounting firms (Epstein 35; Stenzel 146).

The characteristics of TCE are applied in order to describe the origins of economic efficiency in the near shore and offshore accounting service. In addition, the resource based valuation has evolved into being a foundation which is used by near shore and offshore accounting services in order to ensure competitive advantages for their clients. In this perspective, the characteristics of TCE and RBV are applied as autonomous decision making models for the outsourcing decision.  Research has demonstrated that resource based valuation and transaction cost economics are important decision making tools which are used in assessing the decision of whether or not to outsource accounting services (Vang 55).

Transaction based economics is directed toward the participation of efficient management. The resources based valuation is founded upon the nature of competitive advantage in small and medium sized organizations. Transaction based economics details the specifics of the assets and their allocation, which references the skills, knowledge and attitude of the near shore or offshore accounting services provider. The level of confidence in the skills of the certified public accountant is significant aspects which effect the decision of whether or not to outsource accounting services (Bragg 130; Coles 221; Corbett 84; Woodside 101).

The concept of asset specificity should be evaluated not only with the consideration of transaction based economics but from the approach of resource based valuation. In addition the level of confidence in the accounting service supplier is an important consideration in the offshoring and near shoring accounting decisions. In alignment with transaction based economics, the corporate strategic perspective is an additional consideration which can influence the decision that an organization makes on whether to use near shoring or offshoring accounting services. . The directing of the accounting endeavors to a near shore or offshore accounting service provider enables the organization to direct its focus toward the central competencies of an enterprise (Jones 84; Monks 16).

Benefits

The benefits are that the characteristic of near shoring or offshoring accounting services decreases the expenses which are associated with labor. The organization can usually purchase a pre-arranged tax return for approximately $150. The expenses which are associated with the U.S. based form procedure and adding labor expenses to the tax return, k- 1 which must be considered. Research has demonstrated that sending accounting services off shore or near shore provides an accrual which is equivalent to the $750 which is required for a return, income statement , balance sheet which the U.S. based accounting firm would normally charge between $1200- $1500 (Chatfield 53) .

The benefits are that the activities of offshoring or near shoring accounting work enable the accounting firms to take a larger workload.  There are many firms which are very strict with regards to the requisites for receiving work during the seasons of heavy demand. Many accounting firms have had to deny clients service during the season of heavy demand. The association with an offshore or near shore out sourcing accounting services contractor can enable accounting firms to accept jobs which they would normally decline during the season of heavy demand.  It is feasible to have an offshore accounting services contractor provide service for the new client base of a United States based accounting firm while the accounting firm in the United States manages its central clients (Kobayashi- Hillary 143).

Offshoring and near shoring accounting services increases the efficiency of a United States based accounting firm. The aspect of applying offshore or near shore contractors enables the domestic accounting firms to augment their labor pool without acquiring the expenses which are associated with permanent personnel. The outsourcing firms in India may be able to take advantage of the differential in time zones in order to accomplish work which would not be accomplished by the as accounting personnel in the United States until the following day. This characteristic can reduce the turnaround time which is expended on accounting work (Chatfield 130).

Risks

The primary risks are security. The main concerns which clients and accounting firms have in near shoring or outsourcing the accounting work from their firms is if the information which pertains to the client secure in the possession of a third party. It is a requisite that the members of the AICPA form contractual accords which specify that security of their information and the information of the clients is the primary priority for the originators of the accounting work. Confidentiality is a primary concern and priority. The responsibility of the confidentiality would be placed upon the United States consulting firm (Chatfield 55).

The regulations which govern the behavior of members of the AICPA require that the members take responsibility for accounting services which are sent to third party contractors. The CPAs who apply the use of near shoring or offshoring practices for completion of the accounting work must inform the clients prior to the disclosure of sensitive financial information to a third party contractor and receive signed consent

The accountants who are in the domestic firms offices may lose the capacity of comprehending the accounting based services which they are offering to their clients as a result of outsourcing. The aspect of outsourcing accounting work may cause modifications to the U.S. based accounting personnel’s training regimen. The qualities of outsourcing accounting work may influence the conventional career development of the CPA (Chatfield 131).

Cultural Practices and Language

Notwithstanding the generally held assumption that English is the global language of commerce, does not always hold true. Many commercial enterprises, entrepreneurs and investors transact their functions in a number of languages. In addition, the cultural standards and concepts may be substantially distinct from one nation to the other. This holds true in marketing and advertising. In the event that a media campaign has to be communicated to offshore personnel, the members of the overseas concern may not comprehend the cultural nuances of the promotion (Vang 56).

Encountering Suitable Offshore and Near Shore Contractors 

Encountering an offshore or near shore accounting service contractor whose business ideals are aligned in parallel as an associate is extremely important. The time and the effort invested in finding a compatible offshore or near shore associate are well worth the investment. It may be that the firm is looking for a solution which is cloud based.  The aspect of finding a compatible off shore or near shore partner may require research in order to ascertain which offshore or near shore vendors’ objectives are aligned with the originating organization. This quality is important in order to form an efficient and effective association with a on offshore or near shore vendor of accounting services (Vang 60).

Suitability and Cost

In the cultures which are commercial startup and corporate environments, the suitable fit is an important characteristic. This infers that the originating organization and the organization which will be performing the outsourcing function must have similar performance objectives and work ethics.  In the consideration of an offshore or near shore a vendor of accounting services, it is important not to accept the initial lowest or highest bid. The most suitable vendors will be the vendors of offshore or near shore accounting services which offer a balanced combination of excellent value and outstanding results. . This does not occur by chance. The encountering of a vendor which is aligned with the quality standards which are being required requires diligent research (Chatfield 27; Vang 57).

Revision of samples and portfolios

It is always important for the owners of small and medium enterprises to consider that work which is placed in recommendation list and work which is placed into a portfolio may not be genuine. It is of great significance for the owners and the administrators of small and medium sized enterprises to perform due diligence when reviewing potential vendors of offshore and near shore accounting services.  The activities of due diligence may entail getting directly in contact of the stakeholders of the firm where the contractors states that the portfolio work originated. In the event of accomplishing due diligence, if there continues to remain any insecurities with regards to the vendors’ capacity or ability of maintaining the required security implementations , the request of a rapid mock up or a basic synthesis of the vendors work should be requested. It would not be recommended to ask the offshore or near shore vendor to provide a comprehensive mock up. Although the  offshore or near shore accounting services vendor may be interested in transacting with your firm, no one in the world appreciates doing any work without receiving remuneration ( Kamyabi 81).

Confidence of the Small and Medium Sized Organization in Near shoring and Offshoring Accounting Services

The level of confidence in the accounting service suppliers has been delineated as the aspect of one of the parties having the anticipation that the other party will behave in a manner of which can be foreseen with regards to fulfilling the agreement. The characteristics of being able to trust in the offshore and near shore accounting services provider are delineated as the anticipation that the offshore or near shore accountant will complete all of the legal obligations  and act in a manner which has been agreed and is foreseeable. . It is also important that the small and medium sized enterprise perceive that the offshore or near shore accounting services firm will react and conduct fair negotiations when the opportunities for optimization are introduced (Kamyabi 82).

Conclusion

Ten years ago few firms applied the concept of resource based valuation and transaction costs economics. These terminologies are frequently applied in the conventional business environment. Technology is facilitating the movement of information over significant distances; the characteristics of globalization have caused the outsourcing of accounting services to third world service provider nations to become viable methods of attaining a competitive advantage in today’s commercial climate. The guide has reviewed some of the considerations which must be taken into account with regards to the offshoring and the near shoring of accounting services.

Works Cited

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