Accounting outsourcing
{{Short description|Form of outsourcing}}
{{Orphan|date=December 2024}}
Accounting outsourcing, also known as finance and accounting outsourcing, is a subset of outsourcing that involves contracting operations related to accounting and other internal financial controls to a second-party service provider. Accounting outsourcing is a type of back office outsourcing, which includes internal business functions such as human resources or finance and accounting.{{cite web |title=Getting A Piece Of Business Process Outsourcing |url=https://www.forbes.com/sites/greatspeculations/2015/06/22/getting-a-piece-of-business-process-outsourcing/#12b9f2c56f90 |website=forbes.com |access-date=2024-10-05}}
Overview
Accounting outsourcing can be divided into two categories; services for transaction intensive processes and services for knowledge-intensive processes.{{Cite web |title=The European market potential for finance and accounting services |url=https://www.cbi.eu/market-information/outsourcing-itobpo/finance-and-accounting/market-potential |website=www.cbi.eu |access-date=2024-10-05}}
Transaction intensive processes include:
- Accounts payable/receivable accounting
- General accounting
- Payroll accounting
- Fixed assets accounting
- Tax accounting
Knowledge-intensive processes are typically higher value, and include activities such as:
- Budgeting and forecasting
- Capital budgeting
- Internal auditing
- Management reporting and analysis
- Regulatory reporting and compliance
- Treasury and risk management
- Accounting process oversight
- Accounting process advisory
According to the Dutch CBI, the most commonly outsourced accounting processes are transaction reporting, financial reporting, month-end closing, and financial planning and analysis.
In the US in particular, a shortage of locally-available talent is cited as a major reason for accounting outsourcing.Starting around 2023, the use of accounting outsourcing in US labor market increased substantially.{{Cite web |title=Shortage of young accountants leads BDO USA to double offshore workforce |url=https://www.ft.com/content/5e2a3d0d-57cf-4e9a-a8ea-d3877e124037 |date=2023-05-11 |access-date=2024-10-05 |website=ft.com}}{{Cite web |title=Tax Season Is Coming, and These Firms Can’t Find Enough Accountants in the U.S. |url=https://www.wsj.com/articles/tax-season-is-coming-and-these-firms-cant-find-enough-accountants-in-the-u-s-11674009403 |website=wsj.com|date=2023-01-18 |access-date=2024-10-05}}{{Cite web |last=Zaki |first=Adam |date=2024-08-07 |title=90% of CFOs are outsourcing accounting functions |url=https://www.cfo.com/news/personiv-cfo-pulse-survey-finance-accounting-talent-market-outlook-matt-wood/723545/ |access-date=2024-10-06 |website=cfo.com |language=en-US}}{{Cite web |last=Tokarsky |first=Max |title=Council Post: Can Outsourcing Help With The U.S. Accounting Talent Crunch? |url=https://www.forbes.com/councils/forbesbusinesscouncil/2023/02/02/can-outsourcing-help-with-the-us-accounting-talent-crunch/ |website= forbes.com |access-date=2024-10-06 }} However, many businesses also outsource accounting functions to gain access to more specialized talent,{{Cite web |last=Mullich |first=Joe |title=The Benefits Of Outsourcing Finance And Accounting |url=https://www.forbes.com/sites/xerox/2013/07/12/the-benefits-of-outsourcing-finance-and-accounting/ |website=forbes.com |date=2013-07-12 |access-date=2024-10-06}} as well as other benefits of outsourcing.
The global market for finance and accounting outsourcing was estimated at US$43.1 billion in 2022, with US$19.4 billion of that coming from the United States.{{Cite web |title=The Current Landscape of Accounting Outsourcing: Analysis and Recommendations |url=https://moneyminiblog.com/business/current-landscape-accounting-outsourcing/ |website= moneyminiblog.com |date=2023-11-27 |access-date=2024-10-06}}
= Fractional accounting =
Fractional accounting is a type of fractional work where individuals or teams take on partial financial and accounting roles at company. A fractional CFO, for example, might serve as a CFO at several companies simultaneously, none of which have a need for a full-time CFO.{{Cite web |last=Estrada |first=Sheryl |title=Companies are hiring fractional CFOs—and scoring serious talent |url=https://fortune.com/2024/08/20/companies-hiring-fractional-cfo-scoring-talent/ |website=fortune.com |access-date=2024-10-07 |language=en}}{{Cite web |last=Barghini |first=Tiziana |title=CFOs On The Move |url=https://gfmag.com/capital-raising-corporate-finance/cfos-on-the-move/ |website=gfmag.com |date=2024-03-05 |access-date=2024-10-07 |language=en-US}}{{Cite web |last=Rockel |first=Nick |title=How far can you go with an outsourced CFO? |url=https://fortune.com/2023/03/17/the-new-cfo-outsourced-chief-financial-officer/ |website=fortune.com |access-date=2024-10-07 |language=en}}
Fractional accounting usually refers to hiring an accountant to fill an executive level position at a company, but with fewer responsibilities than a full-time employee, while outsourcing usually describes assigning specific tasks to individuals or teams outside of the company.{{Cite web |last=Cortez |first=Angelica |title=The Difference Between Outsourcing and Fractional Hiring |url=https://connectedwomenofinfluence.com/the-difference-between-outsourcing-and-fractional-hiring/ |website=connectedwomenofinfluence.com |date=2022-02-20 |access-date=2024-10-08 |language=en-US}} The terms are also sometimes used interchangeably.
Advantages
As with most types of business process outsourcing, one of the main advantages of accounting outsourcing is lower costs.
Tasks may be outsourced to markets with lower labor costs, and fewer on-site employees lowers infrastructure costs. Professional accountants may also have access to specialized tools and software, allowing companies working with them to reduce technology costs.{{Cite web |last=MoneyMiniBlog |title=The Current Landscape of Accounting Outsourcing: Analysis and Recommendations |url=https://moneyminiblog.com/business/current-landscape-accounting-outsourcing/ |website=moneyminiblog.com |date=2023-11-27 |access-date=2024-10-07 |language=en-US}}{{Cite journal |last=Gourav |first=Sharma |date=2023-05-05 |title=Advantages and impacts of outsourcing accounting to accounting firms |url=https://www.theeconomicsjournal.com/article/view/204/6-1-46 |journal=International Journal of Financial Management and Economics |volume=6 |issue=1 |pages=239–244}}
Accounting outsourcing is also used to access experts with knowledge of new financial regulations. This method is used to reduce costs for training staff and educating employees about regulations.
Outsourcing accounting is also used by businesses that experience variable accounting needs. By outsourcing accounting functions, companies are able to scale up and down according to fluctuations in their need for accounting services. Small and medium enterprises in particular outsource accounting functions as the size of their business sometimes does not justify full-time accountants.{{Cite journal |last=Jayabalan |first=Jayamalathi |year=2009 |title=Outsourcing of Accounting Functions amongst SME Companies in Malaysia: An Exploratory Study |journal=Accountancy Business and the Public Interest |volume=8 |issue=2 |pages=96–114}}
Some research suggests that outsourcing accounting functions enhances the overall revenue of businesses using the services.{{Cite journal |last=Cahyaningtyas |first=Fadilla |last2=Ningtyas |first2=Mega Noerman |date=2020 |title=The use of outsourced accounting service and its impact on SMEs performance |url=http://repository.uin-malang.ac.id/6210/ |journal=JABE (Journal of Accounting and Business Education) |language=id |volume=4 |issue=2 |pages=79–97 |access-date=2024-10-08 |issn=2528-7281}}
Disadvantages
One of the main disadvantages of outsourcing accounting is loss of control of data. Outside parties having access to data can compromise confidentiality and increases the risk of data breaches via cyber attacks, meaning that contracted accounting service can require additional vetting and legal agreements.{{Cite web |title=The pros and cons of in-house accounting vs. outsourcing for your business |url=https://www.business-money.com/announcements/the-pros-and-cons-of-in-house-accounting-vs-outsourcing-for-your-business/ |website=business-money.com |date=2023-12-22 |access-date=2024-10-06 |language=en-US}}
Communication problems are another commonly cited disadvantage. Since outside contractors may be unfamiliar with the business, it can be difficult to communicate specific business needs. When outsourcing occurs in another country, culture and language barriers can also impede communication.{{Cite web |title=6 Disadvantages of Outsourcing Accounting Services for Your Firm |url=https://toaglobal.com/blog/6-disadvantages-of-outsourcing-accounting-services-for-your-firm/ |website=toaglobal.com |access-date=2024-10-06 |language=en-US}}
Dependency is also a common concern. Overreliance on an external service provider can sometimes lead to reduced flexibility and operational freedom.{{Cite web |title=Outsourced Accounting Services - How It Works, Pros, and Cons! |url=https://www.ibntech.com/blog/unlock-small-business-potential-with-outsourced-accounting-services/ |website=ibntech.com |date=2023-05-12 |access-date=2024-10-06 |language=en-US}}