How will offshoring affect UK accountants?

Offshoring – the process of relocating business processes from one country to another, is a growing activity within the service sector. In recent years, US businesses have highlighted the cost benefits of offshoring, which has subsequently put pressure on UK businesses to follow suit, perhaps to the detriment of UK accountants.

Basic accounting, transactional and lower-level bookkeeping processes are certainly ideal functions for offshoring. These are standardised areas which can be codified and easily conducted abroad, since face to face client interaction is not required. In broad terms, any area within accounting not involving face to face relations can be offshored (Rudiger, 2007).

Because of the current wage differential between the UK and other countries ideal for offshoring, UK accounting firms could save millions from implementing the change. Illustrating this further, net cost savings could be in the region of 20 to 40 percent (Myers, 2007), which, for an accounting firm, is too good an opportunity to pass up. Overheads are lower in such countries, and their education systems are more than sufficient and constantly improving, meaning highly skilled and talented accountants are in abundance. Research carried out has also shown that in India for example, the work conducted by accountants is of a particularly high quality (O’Donnell, 2007).

In an era of globalisation, where English is spoken at an advanced level on a global scale, and communications technology is particularly efficient, there has never been a more suitable time for offshoring. Understandably though, such change will have a negative impact on UK employment within the accounting sector.

Research conducted by PWC (PWC, 2005) has revealed that by 2008, the vast majority of financial services firms will offshore. Figures released by Forrester Research predict that over 3 million professional positions, a large proportion of which are financial service related, will move offshore by 2015 - a worrying statistic for UK accountants (Pinto, 2005). If such research is accurate, then as time progresses, a decline in UK based accountant positions will definitely occur, subsequently increasing competition for places.

It is predominantly lower-value added activities which are offshored. If such activities are relocated abroad, then an accountant’s job within the UK becomes more value adding, since more time can be spent on value-adding tasks. This not only benefits accounting firms, but also the accountants themselves, since the job becomes more attractive and enjoyable since trivial tasks would be generally avoided. Nevertheless, fewer tasks means fewer accountants required. Perhaps though, due to the current market demand for audit/consultancy (client-facing) work within the UK, the effects of offshoring on UK employment could infact be offset to an extent.

The effects offshoring would have on UK accountant salaries are difficult to predict. With equally skilled individuals abroad, willing to work for less, accounting firms may decide to pay their UK based accountants less. Adversely though, talented UK individuals could thereafter be more attracted to other professions with more lucrative salaries – an outcome the profession would surely wish to avoid.

Looking at things from a different perspective, accounting firms could actually afford to pay their UK based accountants more since fewer will be required. Subsequently, firms could focus their efforts on only hiring the very best individuals as well. Better individuals mean better productivity, better results, and more adherence to ethical standards – some obvious benefits to the firms involved. An increase in value-adding tasks means that getting the right work force is more critical for success, so paying better salaries for better individuals is a small price to pay.

Apart from removal of trivial tasks, offshoring provides some other benefits for the UK accountant. A reduction in recruitment within the UK could make career progression easier. Obviously, with fewer accountants employed, there are more opportunities to excel and be noticed, i.e. more chances of climbing the corporate ladder. Also, with fewer individuals working and training within the profession, the experience of an accountant within the UK may become more highly regarded and sought after, which again could lead to increased salaries within the UK.

Although offshoring is a desirable process from an accounting firm’s point of view, there are some factors which inhibit it to an extent. Firstly, the role of an accountant is a client-centric one, requiring on occasion face-to-face interaction. Also, the extensive audit process requires on-site attendance, often for substantial periods of time. Thus, geographical proximity is important. Many firms also offer consultancy services to clients, which again require face to face interaction between accountant and client.

Security issues also discourage the implementation of offshoring. Not so long ago, a security breech in an Indian call centre involving UK customer details being made available for sale occurred (Accountancy Age), significantly damaging client trust in the company involved. Although many security measures are in place to protect clients, there is still a public perception concerning data safety. Some accounting reforms may have to take place to eradicate this negative public perception. For example, a more thorough audit process could be made statutory so that internal controls in operation abroad are sufficiently analysed and tested. Perhaps some experienced UK accountants could be offered more senior supervisory type roles to oversee practice abroad.

In summary, it is clear that UK accountants will be effected by an increase in offshoring in the future. Unfortunately, it is difficult to predict the magnitude of this impact. However, what can be said is that an increase in offshoring activity within accounting firms will almost certainly lead to a decline in UK employment of accountants.



References

Accountancy Age., (2005), “Outsourcers play down security risk”, Accountancy Age, July (http://www.accountancyage.com/accountancyage/analysis/2139277/outsourcers-play-security-risk)
ICAEW, (2004), “From outsourcing to offshoring”, ICAEW online (http://www.icaew.co.uk/library/index.cfm?AUB=TB2I_70989)
Maher, K., “Now in Offshoring’s Sights: High-Level professionals”, The Wall Street Journal Online (http://www.careerjournal.com/myc/survive/20040324-maher.html)
Myers, R., (2007), “Offshoring benefits too good to pass up”, CFO Magazine, May (http://globaltechforum.eiu.com/index.asp?layout=rich_story&channelid=5&categoryid=18&title=Offshoring+benefits+too+good+to+pass+up&doc_id=10645)
O’Donnell, A., (2007), “A challenging environment for UK accountancy firms”, RCM Associates (http://www.rcmassociates.co.uk/files/accountancy_services_may_2007.pdf)
Pinto, L., (2005), “Swimming against the tide: The hidden costs of offshoring”, The Online CPA Journal, January (http://www.nysscpa.org/cpajournal/2005/105/perspectives/p9.htm)
PWC, (2005), “Offshoring in the financial services industry: Risk and rewards”, PWC.com (http://www.pwc.com/extweb/pwcpublications.nsf/docid/2711A28073EC82238525706C001EAEC4/$FILE/offshoring.pdf)
Rudiger, K., (2007), “Offshoring: A threat for the UK’s knowledge jobs?”, The Work Foundation, June (http://www.theworkfoundation.com/Assets/PDFs/ke_offshoring.pdf)

Websites

http://www.accountancy.com.pk/articles.asp?id=161

http://agonist.org/ian_welsh/20070512/accounting_offshoring_within_10_years