Offshored vs Outsourced Accounting – What is Better? 

Outsourced accounting or offshore accounting - What is better

As you pivot towards modernizing your accounting firm, you might be considering outsourced accounting. However, the terms “offshore” and “outsource” are often used interchangeably, bringing with them a bit of confusion. What exactly sets these two options apart? Let’s uncover! 

The accounting industry is grappling with significant talent shortages. CPAs and Accountants are balancing the workload with available resources and skill levels. This imbalance can lead to decreased profitability, lower staff morale, and reduced client satisfaction.  

In the U.S., CPAs have recognized this issue and many accounting firms are turning to hiring solutions such as offshoring and outsourcing to address these challenges. 

However, the terms ‘offshore accounting’ and ‘outsourced accounting’ are often used interchangeably and can cause confusion. If you’re among the many accountants still deciding which solution is best suited for your needs, you’re not alone. The confusion is understandable given the close relationship between the two terms. 

This blog aims to clear up that confusion.  

We’ll delve into the differences and benefits of both offshore and outsourced accounting, helping you make an informed decision about which option might be better for your accounting firm. By the end of this article, you’ll have a clearer understanding of how each approach can help streamline your operations and enhance your firm’s effectiveness. 

Understanding Outsourcing and Offshoring 

What is Outsourcing? 

Outsourcing occurs when a company hires an external organization or expert to handle tasks that are usually done by the company’s own staff. It’s like getting external assistance to manage specific business activities that you may not have the time, resources, or expertise to handle on your own. This outsourcing can happen within the same country or in a foreign country. The primary goal is to depend on an independent third-party company to manage these tasks. 

How does Outsourcing Work in Accounting? 

Outsourcing in accounting is when owners of modern accounting firms delegate daily accounting tasks to an external organization. Certified Public Accountants (CPAs) use their expertise to serve their clients while relying on outsourced accounting services to take care of various financial functions. These functions can include filing returns, recording expenses, and reconciling statements and transactions, among other tasks.  

CPAs trust this company to manage the accounting properly, assigning the work to those they believe are qualified for the task. This approach allows CPAs to focus more on their client services while ensuring that all accounting tasks are handled efficiently and professionally. 

Importantly, outsourcing doesn’t have to occur overseas—it can happen within the same country as well.  

Outsourced Statistics

Statistics – Compliance tasks take 44% of client time. By having outsourced or offshore accounting team acting as an extension of in-house staff, CPAs can free up significant time to focus on client advisory services.

What is offshoring? 

Offshoring simply means hiring someone from outside your home country to perform specific tasks or services. This can be on a contractual basis or as a full-time arrangement, where the individuals you hire live in a different geographical region. With the rise of remote work, offshoring has become an increasingly attractive option for many businesses. It allows companies to access a global talent pool and often reduces costs without sacrificing quality.  

Must Read – The Impact of Hybrid Work Model on Offshore Accounting 

How does offshoring work in accounting? 

Offshoring is very popular in fields like accounting (thanks to virtual accounting), where teams from different countries can handle tasks ranging from daily bookkeeping to year-end compliance. Offshore team members work closely with the local team just like any other employee. This helps accounting firms simplify their operations and scale as capacity is not an issue anymore.  

Also, with today’s technology, complex accounting tasks can be managed remotely. This makes offshore accounting a practical option for firms looking to expand their services without a huge expense. 

The main benefit of offshore accounting is that it’s cost-effective. CPAs can hire skilled accountants for less money while still having complete control over their data processing (highly important for strategic decision-making).  

So the Question Remains:

Outsource vs Offshore Accounting 

Aspect  Outsourcing  Offshoring 
Cost  Often more costly  Generally more affordable 
Involvement  Minimal to no involvement  Hands-on involvement required 
Monitoring Work  Reviews work post-completion  Requires Periodic Monitoring 
Staff Retention  Typically no option to retain specific staff  Advisable to retain staff for continuity 
Project Duration  Suited for short-term or small projects  Ideal for long-term commitments 
Team Integration  Treated as external help  Treated like your own staff 
Learning Curve  Little to no learning curve  Staff can be trained and grow within the company 
Client Communications  Usually does not manage client communications  Can handle client communications effectively 
Time Zone Management  Not Required   Requires managing time zone differences 
IT Security  Lower due to limited control over operations  Higher, as more integrated into company systems 

1. Cost Efficiency 

Outsourcing: Typically more expensive if you are opting for domestic providers.  

Outsourcing involves sending some of your business operations to a third-party provider, regardless of whether they are located within your country or abroad. If you choose to outsource within your own country, it might be more expensive because you won’t benefit from the lower talent costs available overseas.   

Offshoring: More cost-effective, leveraging lower talent costs in foreign markets.  

Many people believe that lower costs mean poorer quality, but that’s not necessarily true, especially in offshoring. Thanks to differences in currency values, you can hire top talent from developing countries at a fraction of the cost you’d pay domestically. Offshoring to countries like India allows you to significantly reduce your expenses while still maintaining high service quality, which is perfect for firms that want to stretch their budgets further. 

2. Involvement and Control 

Outsourcing: Minimal involvement from the firm is possible after delegating tasks.  

Outsourcing accounting tasks means less day-to-day involvement for your firm, as you hand over work like tax returns to a separate company on a project basis. Since you don’t get to involve with the person doing the job. it’s not easy to share the feedback or adjust the workflow or get the work done as per your standard process. This setup can limit your control over how the work is done, which might not suit every CPA firm’s needs for flexibility and direct oversight. 

Offshoring: Offers greater control over how tasks are handled.  

This approach is ideal for firms that need tight control over their accounting processes to ensure everything meets their high standards. With a dedicated person assigned to your accounting tasks working as an extension to your in-house team, you have the flexibility to request frequent updates, make adjustments as needed, and share your Standard Operating Procedures (SOPs). This setup allows you to tailor the work to precisely fit your requirements, ensuring that the results align closely with what you expect. 

3. Staff Retention and Project Duration 

Outsourcing: Typically no option to retain specific staff 

Staff retention is less likely in this setup because you often don’t know the individual working on your project. Additionally, the person assigned to your tasks may change, which suits short-term or project-based needs but does not support the continuity needed for long-term engagements. 

Offshoring: Advisable to retain staff for continuity 

Offshoring enables direct collaboration with the actual employee handling your tasks. You can coordinate daily, get to know their strengths and weaknesses, and they become familiar with your company culture. This understanding facilitates consistency, allowing you to work with the same person on future projects and build a long-term relationship. 

4. Integration and Training 

Outsourcing: Outsourcing typically involves minimal integration into your firm’s culture or in-depth training. The primary goal with outsourcing is to complete specific tasks efficiently, without the need to deeply immerse the external team in the company’s internal processes or cultural nuances. This approach can be effective for straightforward projects but may lack the personal touch and deeper understanding that come from being part of the firm’s daily operations. 

Offshoring: Offshoring, on the other hand, provides an excellent opportunity to fully integrate the offshore team into your firm’s culture. This process includes comprehensive training that not only covers the specific accounting tasks they will perform but also ensures they understand your firm’s values and operational ethos. By doing so, the offshore team can handle more complex and nuanced accounting activities and has the potential to grow and evolve within your organization. 

5. Client Communication 

Outsourcing: Client communication is discouraged because outsourced talent often works on a short-term basis and lacks the necessary knowledge about clients.

This separation generally stems from the nature of outsourcing, where tasks are handled externally without extensive integration into your firm’s internal culture and client relationships. As a result, involving the outsourced team directly in client communications can be challenging. They are typically not equipped to represent your firm’s interests or engage with your clients as effectively as in-house or closely integrated teams through offshore hiring will be.  

Offshoring: When you integrate offshore team members into your firm’s daily operations, they gain the ability to directly engage with your clients. 

Offshoring isn’t just about hiring additional support for basic tasks. It also brings opportunities for enhanced client service. As you develop a continuous relationship with your offshore staff, you can evaluate their performance and potential.  

This allows you to gradually assign them more critical responsibilities and even promote them to senior roles over time. This progression not only motivates your offshore team but also adds value to your firm by developing skilled leaders who understand your business deeply. This approach is ideal for firms looking to grow sustainably while maintaining high service standards. 

Must Read – Error-Free Reporting While Engaging With Offshore Accounting Firms

6. Data Security  

Outsourcing: Potentially lower IT security due to less control over the external provider’s operations.  

When you outsource services, there might be a risk of lower IT security. This is because you have less control over how the external provider manages their operations and safeguards data. This reduced oversight can potentially expose your firm to security vulnerabilities, especially when handling sensitive financial information. 

Offshoring: Typically provides higher IT security  

On the other hand, offshoring generally offers better IT security and ongoing managerial support. With offshoring, your firm can maintain more stringent control over security protocols and ensure that they meet your standards. This setup is particularly important for accounting firms dealing with confidential data. The continuous support from offshore managers also ensures that any issues are addressed promptly, maintaining the integrity and security of your data. 

 

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      Is Outsourcing Good or Bad for Your Accounting Firm?  

      Outsourcing can seem like an attractive solution to address capacity issues and handle routine tasks, but it comes with its own set of challenges. It’s often seen as a short-term fix rather than a long-term solution. One common problem is that you usually communicate with a manager for updates rather than directly with the employee doing the work. This traditional “black box” approach means you’re often in the dark about who exactly is handling your projects, which can lead to challenges in maintaining quality and consistency. 

      Conversely, offshoring provides the opportunity to hire your own employees overseas, which comes with great benefits but also some initial costs. These costs include recruitment fees, ongoing payroll management, and expenses related to training and infrastructure. However, these investments typically lead to better integration of the offshore team into your firm’s culture and processes. 

      Credfino offers a hybrid model that combines the best of both outsourcing and offshoring. With this model, you get an employee who becomes an integrated part of your team. You know who is working on your projects, but unlike traditional offshoring, you don’t have to manage training and technology infrastructure. This approach reduces the overhead and complexity of managing offshore employees while still providing the close integration and control that offshoring allows. 

      This model can be particularly beneficial for accounting firms that need the reliability and consistency of having a dedicated offshore team but want to avoid the administrative burdens that typically come with managing international operations. Credfino’s solution offers a balanced approach, allowing firms to enjoy the benefits of a global workforce without the typical drawbacks of traditional outsourcing or offshoring. 

      At Credfino, we believe in helping you build your own team and develop your unique culture and relationships. We also want to save you the trouble of hiring and training someone in a foreign country and dealing with cultural differences. That’s why we take care of these challenges for you. 

      Interested in expanding your team without the hassle? Reach out to us today to learn how Credfino can help you scale your accounting firm by building remote teams. 


      Meet the author

      Author Image

      Namrata Jain

      EA, CA and Tax Lead at Credfino

      Namrata Jain is a Partner at Credfino, focusing on Tax for both Canadian and U.S. clients, including individuals and corporations. She's an Enrolled Agent (EA) and Chartered Accountant (CA) and brings over 12 years of experience in accounting and taxation.

      Author Image

      Namrata Jain

      EA, CA and Tax Lead at Credfino

      Namrata Jain is an Enrolled Agent (EA), Chartered Accountant (CA), and Partner at Credfino, focusing on Tax for both Canadian and U.S. clients, including individuals and corporations.

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