How Will Offshoring affect UK Accountants?

“Outsourcing of manufacturing jobs has been going on for decades, but now white-collar, service-sector jobs seem to be at risk” (Dudley, et al, 2004) The frequency of Business Process Outsourcing (BPO) has been mounting for many years. Although previously offshoring has been popular with blue collar work to countries such as China, it has now become quite common for white collar work to be transferred to India. This has had a huge impact on many professions and industry sectors, none more so than accounting. It is important to examine this area further in order to ascertain the consequences and effects it may have on the accounting profession and the accountants themselves.

In terms of accounting functions, offshoring has had a great effect on all service lines, however it has emerged that tax departments have seen the biggest change. “As many as 360,000 US tax returns were prepared in India in 2006”
(http://www.pressbox.co.uk/detailed/Business/Offshoring_Tax_Returns_Preparation_to_India_90516.html ) These figures are relatively similar to what is happening in the UK today, and they are set to rise in the very near future. Tax has seen the biggest change mainly due to the fact that it would be incredibly difficult, if not impossible, for audits to be conducted from another country. Tax returns and computations however, can easily be transferred by means of the internet or file sharing. One main cause of this drastic change in service is the competitive pressures which accounting firms now face. The current market is more competitive than ever, and accounting firms are constantly looking for ways to make their operations more efficient. It can also be said that tax is a very ‘seasonal’ service. Tax departments in accounting firms will be busiest in the lead up to April, the end of the tax year, and so may need to transfer their operations offshore in order to meet client demand. On top of this there is currently a significant shortage of accountants in the UK, creating even more reason for the existing offshoring pattern. One particular reason which could make this pattern change course is the reserves of the accounting firms. There are various justified reasons why firms may be apprehensive about offshoring, in particular, data security.

Naturally, data security is of particularly high importance to firms to ensure client protection and maintain a good reputation. However the consequences of offshoring could prove to be disastrous if the chosen country has not got the adequate protection laws in place. Obviously the main priority of an accounting firm looking to offshore its services would be to “insist on security certification, or adherence to laws, standards and business practices prevalent in their respective countries.” (http://www.networkmagazineindia.com/200304/cover1.shtml) Fortunately there are security certifications that companies can acquire such as ISO 17799 which is an information security standard published by the International Organisation for Standardisation. This provides best practice guidelines on information security management for companies responsible for data. On top of this, there are various other protections which could be utilised by accounting firms in the UK, for instance, “Indian firms that deal with US companies are also asked to comply with US laws like the Graham-Leach-Bailey Privacy Act and the Patriot Act.” (http://www.networkmagazineindia.com/200304/cover1.shtml) UK firms should employ this tactic to ensure strict policies and regulations are adhered to regardless of the country they operate in. With these in place, offshoring will only become more common and easy to implement, causing huge impacts on employment patterns.

As would be expected, employment levels fall when offshoring is implemented by large companies, and it is estimated that this will cost the UK economy £5.7bn in “unemployment benefits and retraining costs” in the next six years. (http://management.silicon.com/itdirector/0,39024673,39118025,00.htm) However, were UK companies to persevere with using a home-grown workforce, this may also have a detrimental effect on the economy in terms of companies being less profitable and slowing GDP growth. While this debate is still on-going, one thing is certain; UK accountants may need to learn new skills in order to survive. In particular, tax accountants may need to establish new, fresh, flexible, and innovative skills to maintain there position within the sector and ensure they are carrying effective, and more importantly to organisations, efficient work. Without these skills, offshoring is likely to become the norm for tax accounting, and many skilled workers may find themselves jobless.

Offshoring has been developing and growing for many years, and currently it shows no sign of waning. For the accounting sector this could potentially result in whole tax departments being transferred overseas, and numerous specialised accountants out of work. For them to compete with this worrying trend, it may be necessary to learn exciting, novel skills to differentiate them from the foreign workforce. Although data security and other legislation may prove to be a stumbling block, it does not seem to be slowing down the migration of work to other countries.


References

Dudley, W, Hooper, P and Resler, D, (2004), “Ease the pain, but don’t stop Offshoring services”, FT.com.


Network Magazine, ‘Information Security: A New Approach’ [April 2003]
http://www.networkmagazineindia.com/200304/cover1.shtml
[accessed 9/11/07]


Pressbox, ‘Offshoring Tax Returns Preparation to India’ [Nov 2006]
http://www.pressbox.co.uk/detailed/Business/Offshoring_Tax_Returns_Preparation_to_India_90516.html
[accessed 9/11/07]


Silicon, ‘Offshoring will Cost UK £5.7bn and 250,000 jobs by 2010’ [Jan 2004]
http://management.silicon.com/itdirector/0,39024673,39118025,00.htm
[accessed 11/11/07]