The Essential Guide to Offshore Accounting for Australian Accounting Firms

Over a decade ago, the term “offshore accounting” began gaining traction in Australia primarily due to the ongoing skills shortage. Offshore outsourced accounting has emerged as a new business model development.

In response, numerous Australian accounting firms started outsourcing their accounting processes to offshore locations. This approach aimed to address the scarcity of skilled accounting professionals and reduce overhead costs.

If you own an accounting firm in Australia, you might have heard about offshore accounting but may not have engaged with it yet. You may have questions about how it actually works and the benefits it can bring to your accounting firm.

Let us provide you with a comprehensive breakdown of offshore accounting and its potential value for your business.

Table of Contents

1. What is offshore accounting and how it works?

Offshore accounting refers to the practice of conducting accounting functions in a foreign country or a jurisdiction other than Australia. Below are 2 key terms that explain offshore accounting:

Outsourcing: When you enter into an agreement with a third party to handle specific functions such as accounting, IT, consulting, etc., you engage in outsourcing. This means that you delegate those particular tasks to a third party, domestically or offshore, and they are responsible for performing them on your behalf.

Outsourcing typically occurs when your firm lacks sufficient internal resources to handle a specific process. In other cases, outsourcing is often pursued to reduce costs, engage specialists or mitigate overflow workloads.

Offshoring: The practice of basing a specific function overseas is called offshoring. Offshoring doesn’t necessarily involve outsourcing with a third party outside Australia. For example, when you transfer your accounting process to a branch or your joint venture in a foreign country, it’s considered offshoring.

Offshore accounting outsourcing involves entrusting accounting processes to an offshore service provider. The offshore accounting service provider is a third party located in a foreign country, offering accounting services to local firms. Typically, the chosen country is known for its favourable economic conditions, cost-effectiveness, and prosperous workforce.

Amidst skills shortage, an increasing number of small to medium-sized Australian accounting firms have turned to overseas outsourcing to gain access to more skilled accountants.

Below are the 5 typical steps of an offshore accounting process that engages an offshore service provider:

Step 1: Initial document collection
The Australian accounting firm gathers all necessary documents from their end clients.

Step 2: Transfer to offshore service provider
The collected documents are securely sent to the offshore service provider for accounting processing.

Step 3: Offshore accounting processes
The offshore accounting team performs all required accounting processes.

Step 4: Document completion and review
Once the accounting processes are complete, the Australian accounting firm receives the finalized documents from the offshore provider.

Step 5: Finalization and distribution
The Australian accounting firm reviews and finalizes the documents, making them ready for filing or distribution to the respective end-clients for business purposes.

In the context of evolving digitalization, the outsourcing process is usually digital, which raises concerns about data confidentiality and security.

2. Pros and cons of offshore outsourced accounting

Offshore outsourced accounting has become a popular choice for many Australian accounting firms, driven by numerous benefits. This approach helps your firm gain a competitive edge; however, several considerations must be taken into account.

Exploring its benefits and challenges will provide a deeper understanding of why it has gained momentum in the industry and what you should be concerned about to ensure an efficient outsourcing process.

2.1. Benefits of offshore accounting

Australian accounting firms turn to offshore accounting outsourcing for the top 5 benefits below:

Solution to skills shortage

Skills shortage is currently a significant concern in Australia, and the accounting industry is one of the sectors critically impacted by this issue. Due to the labor shortage, there are more inexperienced accountants entering the industry, resulting in lower work quality.

In this labor-intensive environment, outsourcing accounting processes to a more advantageous country becomes the saving grace for smaller accounting firms.

Vietnam, the Philippines, and India are the top three countries for Australian accounting firms to consider offshore outsourcing of accounting tasks. These countries have an abundant and skilled workforce that you can leverage effectively.

By adopting offshore outsourcing, you can consistently provide your clients with better service quality and alleviate hiring stress.

Learn more: Australian Skills Shortage: How Accounting Firms Responded

Cost efficiency

For smaller accounting firms with limited resources, this is likely one of the most appealing points. The difference in salary costs per a staff geographically gives accounting firms based in Australia a cost advantage.

Outsourcing accounting tasks to a country with lower labour costs allows them to pay less for accounting resources compared to hiring locally. You can charge the same fees to your local clients while reducing your overall work costs.

High service quality

Service quality is a crucial aspect that you, as an accounting owner, prioritize. Many local firms are hesitant to outsource offshore due to doubts about the service quality of a remote team since they may not have full control over their accounting processes.

However, this perception is just a myth. In reality, many offshore service providers, like Odyssey Resources, are owned and operated by Australians, ensuring that the quality is consistently maintained to Aussie standards.

For instance, at Odyssey, all accountants undergo extensive training for at least 12 to 18 months before directly involving themselves in the accounting processes of client firms.

Besides, in this digital age, you can even manage the accounting processes seamlessly from Australia, typically from a web-based or app-based client portal.

Some of you might have unpleasant experiences with some offshore providers, but such issues can happen anywhere. You must make sure to research and choose your outsourcing provider wisely.

Access to greater expertise

Typically, accounting firms outsource mundane and time-consuming accounting tasks or functions that are outside their expertise. Thus, they can redirect their efforts toward handling more critical and strategic tasks.

Quick backup of accounting capacity

Imagine if one of your key accountants leaves the job temporarily or permanently, and you struggle to fill the vacant spot or handle the overwhelming workload.

Outsourcing can provide you with a quick backup of accounting capacity that you need. You have the option to outsource ad-hoc work, hire a fixed resource, or delegate an entire project.

2.2. Why Australian accounting firms adopt outsourced accounting overseas

All of the aforementioned benefits are the main reasons why Australian accounting firms choose to develop accounting function with offshore outsourcing model.

So, what does your accounting firm actually achieve from offshoring accounting?

Focus on what truly matters: Outsourcing non-core but essential tasks saves your team plenty of time, allowing them to focus on higher-level activities, such as client-facing positions or strategic planning.

Build a cost-effective strategy: Offshoring accounting significantly reduces hiring costs for Australian accounting firms.

According to Seek, the average annual salary for accountant jobs in Australia ranges from $70,000 to $90,000, not to mention the additional expenses associated with hiring and training new employees to integrate into the workflow, along with the costs the company incurs while waiting for qualified accountants.

Enhance team productivity: Having an offshore team to support with time-consuming workloads would reduce the work burden of local staff, providing them with a more balanced work-life environment.

As a result, there would likely be higher staff retention rates and increased productivity among your local team.

Stay ahead of the competition and scale up efficiently: Efficiently managing your tasks in a cost-effective manner enables you to outperform your competitors. With more time and resources at your disposal, you can focus on scaling up your business.

2.3. Challenges of offshore outsourcing

While offshore accounting can bring plenty of benefits, it also involves some challenges for Australian accounting firms to adopt.

Data security and privacy: Transferring accounting processes offshore remotely, using methods like server-based, remote desktop-based, or hosted/online-based, requires the highest level of security measures.

Geographical differences: Communication becomes a major challenge when engaging an offshore service provider due to time zone, language, and cultural differences.

3. Who and what to outsource?

You must be wondering if offshore outsourced accounting is right for your firm and which accounting processes you should outsource. Read the below:

Who to outsource?

Offshore outsourcing is a common choice for small to medium-sized accounting firms seeking access to qualified accountants, cost savings, and opportunities for growth.

If your firm falls into any of the following cases, engaging an offshore accounting team can be highly beneficial:

Startup, small, or medium-sized business with limited resources
Difficulty in hiring skilled accountants locally
Need for rapid scaling of operations
Requirement to expand accounting capacity for a specific period or long-term
Overwhelmed with accounting workloads and seeking expert support to streamline processes and improve efficiency.

What to outsource?

Your accounting firm can outsource any accounting processes that suit your business needs. Typically, firms opt to outsource back-office services and non-client-facing positions, which involve basic yet time-consuming repetitive tasks that are fundamental to the business.

Below are some common choices of offshore outsourcing services by accounting firms:

Tax preparation
Accounting compliance
Bookkeeping
Compliance review
SMSF compliance
Auditing
Payroll
BAS
Data entry
Reconciliation
Data migration

4. How to outsource offshore accounting?

To start outsourcing your accounting processes offshore, follow these six simple steps:

Step 1: Assess your accounting business and identify which accounting processes you need to outsource

Step 2: Decide an outsourcing model that aligns with your business needs, whether it’s ad hoc, fixed resources, or fixed job

Step 3: Select a reputable offshore accounting partner after conducting thorough research

This is a time-consuming process and needs to consider several factors while making your choice. Below are what to look for in an offshore outsourced accounting service provider:

A proven track record with client footprints and positive referrals
A strong system of data security and privacy
Efficient and agile communication
A professional team of well-trained and experienced accountants
A well-organized working environment for their staff, as it directly impacts the quality of work that they produce for you

Step 4: Conduct due dilligence check carefully before entering an outsourcing agreement.

Here are the general considerations when deciding to enter into outsourcing and offshoring arrangements, as stated by the Tax Practitioners Board (TBP):

Clearly defined duties, obligations, and responsibilities of the parties involved, with review provisions.
Limitation of liability and indemnity insurance arrangements.
Flexibility to accommodate changes in technology and operations.
Data transfer and integrity, storage, access, and backup processes.
Security controls and protocols to prevent unauthorized access and disruptions.
Processes for managing and resolving disputes, including legal jurisdiction.
Competency and ability of the outsourced service provider.
Processes for the tax practitioner to review the outsourced entity’s output.
Exit or end-of-arrangement procedures, including data access or return.
Compliance with legislative and regulatory requirements related to offshore information

Step 5: Sign an agreement that works between your firm and the offshore provider
Step 6: Send accounting work to the provider, continuing the 5 steps of an offshore accounting process that are mentioned in heading 1.

5. Considerations before offshoring and outsourcing

Considering the following before you enter the offshore accounting outsourcing agreement with the service provider:

5.1. Code of professional conduct

When considering outsourcing and offshoring arrangements, tax practitioners should take into account the following Code obligations:

Provide appropriate disclosure to clients regarding third-party involvement and data sharing.
Ensure services are provided competently, even when outsourced to an unregistered third party.
Implement adequate supervision and control arrangements for outsourced work.
Take reasonable care in ascertaining a client’s state of affairs and applying taxation laws correctly.
Maintain professional indemnity insurance that meets the TPB’s requirements.

The code includes principles on honesty, integrity, independence, confidentiality, competence, and other responsibilities. Compliance is crucial, failure to comply may lead to sanctions.

5.2. Engagement letters

Before starting the outsourced process, it is recommended to have a written agreement, like a letter of engagement, outlining the terms and conditions of the engagement. This helps establish clarity and understanding, avoid misunderstandings between your accounting firms and the service provider.

Recurring engagements should be regularly reviewed. Below are typical elements to include in a letter of engagement:

The scope and description of work
Responsibilities
Communication
Fees
Termination arrangements
Dispute resolution mechanisms.

5.3. Cloud computing

Cloud computing is the provision of IT resources as a service through a network, typically over the Internet. Services can include data storage, software programs, applications, and more.

Factors to consider: