subject: Is Global Outsourcing of Accounting Functions Really a Good Idea? [print this page] Is Global Outsourcing of Accounting Functions Really a Good Idea?
Many companies have taken the steps to cut their costs and maximize their profits by outsourcing certain departments like customer service and technical support to other countries. This seems like a relatively safe and low-risk practice for the company. But what about outsourcing the financial and accounting departments? With a 9.6% U.S. unemployment rate as well as a struggling U.S. economy, does this make sense to send accounting functions overseas?
The global outsourcing of financial and accounting departments is estimated to grow 9.6% over the next five years. And according to Dan Ensinger, "A recent study by Forrester Research Inc. found that by 2015 as many as 3.4 million white-collar jobs and $136 billion in wages could be shipped overseas." With the American unemployment rate holding at a staggering 9.6%, sending millions of jobs overseas seems like a bad practice.
Why would a company choose to outsource accounting, considering the rules for accounting vary so much on a global scale? The biggest advantage to global outsourcing is the amount of costs that it eliminates for the company. People in other countries will typically work twice as hard for a fraction of the pay that Americans demand, often with the same education levels. A company can cut thousands, and even millions, from their payroll costs alone, while freeing up space that would have been used for entire accounting departments that can now be used for something else. Also, outsourcing the accounting departments can allow management more time to focus on other areas of the organization that may need attention, can speed up the time it takes to get financial or accounting information, and creates a nonbiased, outside view to creating the financial statements, which can lower bad or illegal accounting practices from within a company.
But it also has disadvantages for the company, mainly dealing with the differences in countries accounting laws. The governing accounting laws in the United States, GAAP, have major differences with the international laws, IFRS. Companies overseas may have mastered the IFRS accounting regulations, but mastering and applying GAAP principles could cause difficulties and create major errors. Also, it may be difficult to receive timely statements or feedback, due to time differences. There is also pending legislation in congress to tax companies more heavily that outsource to foreign countries.
Clearly, outsourcing accounting functions has its advantages and disadvantages for the company that chooses to do it. But what about the effects that it has on the economy? The most obvious effect is the loss of jobs for Americans. If Americans don't have jobs, they do not spend money. When people stop spending, the manufacturing companies stop producing products, which in turn causes more companies to lay off workers or even shut down. The loss of consumer spending is already felt in the United States, with the crash in the housing market and with such high unemployment. It also causes a major loss of income for the local, state, and federal governments because of less payroll tax receipts as well as lowered contributions to Social Security and Medicare. Also, tax revenues from companies decrease which is a major source of funding for our education, infrastructure, and health systems.
Outsourcing creates vicious cycles in our economy that are very hard to get out of. One of the main reasons for outsourcing is that American schools are not producing highly or semi-skilled workers at a quick enough pace. But by outsourcing, it takes money out of our education systems, which in turn could raise tuition costs causing less people to enroll in colleges and trade schools. Also, because of sending jobs out of the country, the unemployment rate will continue increasing as more Americans become out of work and cannot find jobs here in the States.
Because of the current state of the U.S. economy, it seems as if the global outsourcing of accounting functions, as well as any other department, does not make our country stronger economically. Shipping any American job overseas at this time will hurt our economy, not just in the short-term, but in the future as well.
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