Outsourcing in the Australian Accounting Industry

Write about the Review of Current Accounting Issues for Professional Colleagues.

The present report is developed to provide an analysis of the current accounting issues and providing their adequate understanding to the professional colleagues and clients. The analysis is carried from the perspective of a senior accounting working for a form. This report analyses news article published recently and provides the explanation to its concepts and ideas with the support of relevant theory to the CEO of the firm. This ahs been done to provide the CEO of the firm adequate understanding of the accounting issues to be able to present a full disclosure of the information at an upcoming conference. In addition to this, the identification and analysis of a recent upcoming accounting standard has been taken by selecting an exposure draft that is open to comments from the industry players and participants as per the new roles provided by senior partner of the firm.

The professional article selected for the analysis purpose is ‘An Australian Accounting perspective on Outsourcing’ that discusses the reasons for the accounting firms to implement the use of option of outsourcing at a rising pace. This is mainly being done to gain cost and time advantages by the accounting firms so that they can concentrate more on their core activities. It has been identified that large number of firms in Australia engaged in accounting field is transferring the large part of their operations to countries such as India and Philippines for achieving cost and time advantage. It has been identified that workers in such countries scan be paid relatively lower for completing the time-consuming compliance work (Carter, 2018).

It has been depicted from the article that increase of competitive pressure on the Australian accounting firms is causing them to take advantages of outsourcing so that they can maintain their competitiveness at a global level. The outsourcing companies are enabling the firms to also focus on other major areas thus providing improved services to the clients and achieving the customer satisfaction. The outsourcing company selected should have separate staff for working on each division. Thus, as such there should be bookkeeping division to perform the work of bookkeeping, compliance work should be carried out by the compliance divisions a conversion work by the conversion division. This helps in gaining the best use of talent resources overseas to the Australian accounting firms. Therefore, the company should possess adequate manpower resources for carrying out the different work activities of the accounting firms. In addition to this, the accounting firms are able to complete the work on time that also in turn enables them to achieve client satisfaction by the use of option of outsourcing. Thus the use of outsourcing operation will provide high quality work to the forms on time and thus providing sufficient time and resources to managers for focusing on higher value areas (Top 5 reasons why Australian Accounting firms are outsourcing overseas, 2018).

Impact of Outsourcing on the Economy

However, in this context, it is essential by the accounting firms to take into account that the outsourcing company selected should not cause any security breach for the accounting firm that can negatively impact its goodwill. The accounting systems and practices used by the outsourcing company should operate as per the standard rules and regulations to ensure the quality services to be provided to the accounting firms. This is essential as per the views and opinions provided by accounting theory that has provided the standard rules and regulations for the accounting profession to be implemented by them for protecting the interests of the clients. The rules and regulations can be regarded as the collection of hypotheses, codes, business concepts and valuation models to be used for carrying out the daily business activities of the firms. The Australian Accounting firms need to carry out their business activities and functions as per the AASB standards and their legal rule provided by the Corporations Act 2001.  These standards and rules provide the basis for the practical application of the accounting theory. It is essential for the outsourcing company to conduct the accounting functions of the Australian accounting firms as per the standard regulations and rules (Wolk, Dodd & Rozycki, 2016).

Thus, the outsourcing company needs to align its business objectives and aims as per the accounting firm in accordance with the stewardship theory. The aligning of the business objectives and aims is essential to ensure that both the firms have a common objective and strategic direction. This will ensure that the outsourcing company selected act responsibly towards the accounting firm and to ensure the protection of interests and confidence of the stakeholders. Also, the most pertinent accounting issue that arises in this context for the Australian accounting firms is related to the trust and confidence of the clients of the firms. This is because the clients are relatively unaware of the outsourcing practices of the firm as they information regarding the processing of their tax returns or handling their financial affairs is kept confidential. Thus, the clients are paying the premium services for gaining services from a selected accounting firm but in turn are achieving the services from the firms based in other parts of the world. The Australian Accounting firms tend to boost their profits of the clients by the use of offshore labor and yet the clients are not aware of the type of the company from which they are achieving services. This is against the interests and confidence of the clients of the Australian accounting firm companies as per the stakeholder theory. The stakeholder theory of the accounting corporate governance has stated that the business entities need to provide the required and relevant information about the nature of their business activities to all its stakeholders. This is essential to maintain transparency and reliability in the business operations and for protection of their interests (Roslender, 2017).

Proposal Changes to IAS 16: Property, Plant and Equipment

However, Australian accounting firms are hiding the materialistic information from the clients that can impact their decision-making. As such, it is essential for the companies to provide all the relevant information to the clients as per the Code of ethics of integrity and honesty provided by ASX corporate governance principles. The firms as per the code of ethics established for the accounting professionals need to provide all the information that can have a material effect on the outcomes provided by them to their respective clients. The firms are required to comply with the fundamental principle of conceptual accounting framework that has maintained the disclosure of relevant and complete information to the stakeholders influencing their decision-making. AASB have directed all the Australian business entities to comply with the conceptual accounting framework provided by the IASB (International Accounting Standards Board). As such, it is unethical and illegal on the part of Australian accounting firms to realize higher premium from their clients for their high quality work that is produced offshore and not inshore (Top 5 reasons why Australian Accounting firms are outsourcing overseas, 2018).

Also, the outsourcing of major business activities by the Australian accounting firms also impacts the overall sustainability of the economy. It undermines the local employment opportunities of the accounting professionals within Australia as major accounting functions are carried in an offshore location by the firms. As such, it can negatively impact the economic growth and development of the country by increasing the unemployment rate among the accounting professionals. As such, it can be said that lack of transparency and increasing the unemployment opportunities is a major cause of the issue of concern for the accounting firms relating to their increasing outsourcing activities. The increased advantage of achieving high quality work in a timely manner can be outweighed by the negative impacts of the outsourcing which need to be overcome by the accounting firms of Australia. As such, it can be analyzed from the article analysis that the related theoretical framework for examining the accounting issue in detail that accounting firms should restrict their outsourcing functions and conduct their core operations within the country only (Carter, 2018).

This section of the report review the current exposure draft submitted by the IASB on their portal to invite the comments from the various parties that have interest in particular accounting standard. The exposure draft is related to the proposed changes in the account standard IAS 16. The IAS 16 is related to the property, plant and equipment and the exposure is introduced to bring changes in some of existing provisions of this standard and also includes some new provisions in this accounting standard. Many comments letters are received on this exposure that gives their opinion on whether proposed changes are favorable or not favorable for the future period. The purpose of this section is to discuss the issues and changes that are described in the proposed exposure draft and to address any four comment letters given on the portal of IASB related to exposure draft on IAS 16: Property, plant and equipment.

Conclusion

The comments letters are provided by the people from all over the world to give the expert comments and to propose any changes in the exposure draft so that it can harmonize with the requirement to introduce the relevant accounting standard. The changes provided in the comment letter are evaluated in detail by the board member of the IASB and if any changes in required in the exposure draft will be done so that draft will be enacted with the proposed changes (IFRS, 2018).

In this part changes provided by the exposure on IAS 16: Property, Plant and Equipment has discussed in detail. This exposure draft is related with the measuring the value of property, plant and equipment and it affect organisations, individuals and other accounting bodies that have relation with this accounting standard and have to perform the accounting of property, plant and equipment in their books of accounts. The IAS 16 accounting standard applies to all the business entities and it provides various provisions on how the property, plant and equipment are measured when it has been accounted in the financial statements. The exposure draft has proposed necessary changes to IAS 16 and according to these changes business entities are now required to reduce the sales proceeds from the property, plant and equipment that are used before by the entity to bring the new assets to the actual points of use. It is required by the business entities to report the sales value and cost involved in the development of property, plant and equipment in the financial statements. The property, plant and equipment that can be used for bringing the new assets to the place of actual use can be testing equipments, testing facilities, and parts of news assets that are used and replaced during the testing phase. The purpose of introduction of such changes in IAS 16 is to improve the quality of financial reporting and to incorporate the changes that are required by various entities or accounting professional (IFRS, 2018.

As per the changes discussed in the exposure draft, if any inventory has been produced during the testing phase of an assets should be recognised in the profit and loss financial statement through adding the sales realised and subtracting the cost incurred in the development of assets. The proposed changes will help various business entities that are actively involves in testing phase of assets before they are actually put to use. After the implementation of the proposed changes in the accounting standard will help the business entities to recognize the cost incurred and sales realized from the testing equipments in the profit and loss account. Currently the cost is added to the asset and benefits are taken in the form of depreciation. This accounting has caused the issues when testing is carried out but no assets are brought in existence due to failure in testing. It means business entities cannot take advantage of expenses that are incurred while testing are performed as it was neither taken to the profit and loss account nor it was recognised as cost of assets in the balance sheet. The proposed changes in IAS 16 will help the business entities in attainting the convergence of existing accounting standard that are related to the measuring of value of assets (Property, plant and equipment). These changes will help the business entities to bring more clarity in the financial statements which in turn world help in gaining the trust of all the stakeholders.

The public interest theory was introduced to protect the rights of the public and to promote the general welfare of public at large through controlling the actions of various regulator and government bodies. It is mandatory for the accounting bodies to make use of the public interest theory in order to develop the accounting regulation and rules that are applicable on the different entities and has overall impact on the public. This theory states that the market environment is uneven and it is needed to put control and supervision on the practices of different regulatory bodies in order to rectify the inefficient behaviour against the public interest.

On the basis of comparison of proposed changes in the IAS 16 accounting standard with the public interest theory it has been found there all the modification are in align with the guidelines and rules defined in the public interest theory. The modifications will help the users of the financial statement to take decision more precisely as the proposed modifications will correct information presented in the profit and loss accounts and balance sheet in relation to the property, plant and equipment (Carmona & Trombetta, 2010).

The proposed exposure draft by the IASB is related to the IAS 16: Property, plant and equipment. There are many reasons to provide the exposure draft before making the changes in the required accounting standard. So the main purpose of the exposure draft is to invite the reviews from different category of people in the form of comment letters. The exposure draft is published on the IASB portal and form where the people related to the field of financial reporting can provide their valuable comments on the proposed exposure draft. In this case four comments letters have been selected to review and to identify whether they are against or in favor of the exposure draft (Carmona & Trombetta, 2008).

The four comment letter given by the different accounting individual or bodies are as follows:

1. Comment letter 1 (Association of Accounting Technicians): According to the AAT (Association of Accounting Technicians) the proposed changes suggest by the IASB in Standard IAS 16 are in favor and helps in improving the level of fairness in the accounting of plant, property and equipment. It is because some of the industries bear high cost for the testing of the assets and fail to recognize the cost of testing in books of accounts due to irregularities in the accounting standard. After modification in the IAS 16 all irregularities will be resolved and it will benefit the business entities a lot (Comment Letters, 2018).
2. Comment Letter 2 (Letter from the Rhafael, an individual from the Philippines): As per the understanding of the Rhafael, the proposed changes in the IAS 16 are in public interest and also improve the quality of financial reporting.
3. Comment Letter 3 (From DRSC, An accounting body in Berlin): This accounting body is clearly against the proposed changes in the IAS 16 and has provided following reasons:
   1. The proposed changes does not provide proper definition of the assets that can be classified as testing equipments and goods that are produced during the testing
   2. The sales realized from the disposal of the assets used in testing and any inventory produced during the testing
4. Comment Letter 4 (Letter given by the Brazilian Accounting Committee): This accounting is responsible for regulating and implementing the accounting standards for the business organization in Brazil. The Brazilian Accounting Committee agrees with the proposed changes of the accounting standard in relation to reduction of the cost incurred for testing and any other expenses from profit realized on the sales of such testing assets and any goods produced during the testing (Comment Letters, 2018).

Many accounting bodies and person related to accounting professionalism has taken interest in the exposure draft on IAS 16 and has provided their comments on this exposure draft in form of comment letters. The arguments provided by the accounting professionals and other accounting bodies can be against or in favor of proposed changes. The comments letters that favors the exposure draft wants that modification in the IASB 16 as proposed in exposure draft must be enacted as it is provided. So persons that favor the modifications wants that cost incurred on testing equipments other assets must be subtracted from the sale value of goods produced during testing and testing equipments. People against the exposure draft do not want to introduce such changes in the accounting standard as it will violate the rules of accounting (Mande, 2014).

On the basis of analyses of the comment letters it has been found that comments letters 1, 2 and 4 are in favor of the exposure draft and clearly provided that this standard will help them in making their own accounting more precisely. So it can be said that private interest theory applies to comment letters 1, 2 and 4. While public interest theory applies to the comment letter 3 as it has provided the reasons that are valid and are in interest of public at large (Herrmann, 2011).

Conclusion

It can be stated from the overall discussion held in the report that outsourcing of Australian accounting firms is often associated with some unethical and illegal issues that need to be taken into account to minimize its negative impact on the consumers and accounting professionals within Australia.

References

Carmona, S & Trombetta, M. 2010. On the global acceptance of IAS/IFRS accounting standards:The logic and implications of the principles-based system. J. Account. Public Policy 27, 451-461.

Carmona, S. & Trombetta, M. 2008. On the global acceptance of IAS/IFRS accounting standards: The logic and implications of the principles-based system. Journal of Accounting and Public Policy 27( 6).

Carter, D. (2018). An Australian Accounting perspective on Outsourcing. Retrieved 4 May, 2018, from https://www.linkedin.com/pulse/australian-accounting-perspective-outsourcing-david-carter

Comment Letters. 2018. Exposure Draft and comment letters—Property, Plant and Equipment—Proceeds before Intended Use (Proposed amendments to IAS 16). Retrieved on May 5, 2018, from https://www.ifrs.org/projects/work-plan/property-plant-and-equipment-proceeds-before-intended-use/comment-letters-projects/ed-property-plant-and-equipment/#comment-letters

Herrmann, D. et al. 2011. The quality of fair value measures for property, plant, and equipment. Accounting Forum 30, 43–59.

IFRS. 2017. Exposure Draft and comment letters—Property, Plant and Equipment—Proceeds before Intended Use (Proposed amendments to IAS 16). Retrieved on May 5, 2018, from https://www.ifrs.org/-/media/project/property-plant-and-equipment/exposure-draft/exposure-draft-property-plant-equipment-june-2017.pdf

Mande, B. 2014. Emerging Nations and Financial Reporting Complex: A case for IFRS adoption in Nigeria. Journal of Finance, Accounting and Management 5(2), 1-23.

Roslender, R. (2017). The Routledge Companion to Critical Accounting. Routledge.

Top 5 reasons why Australian Accounting firms are outsourcing overseas. (2018). Retrieved 4 May, 2018, from https://www.odyssey-resources.com/2018/01/top-5-reasons-australian-accounting-firms-outsourcing-overseas/

Wolk, H., Dodd, J. & Rozycki, J. (2016). Accounting Theory: Conceptual Issues in a Political and Economic Environment. SAGE Publications.