What Is Offshore Accounting? A Complete Introduction

Offshoring is not about throwing your work over to the other side of the border and hoping it gets done accurately and to your standards.

The right offshoring strategy provides you with a dedicated team that works in your systems and uses your workflow processes like your in-house team, relieving your in-house team of excess work and freeing them up to focus on the most profitable work at a significantly lower employee cost.

At the end of this article, you’ll understand the difference between traditional versus offshore accounting, how to ensure the security (and privacy) of client data, and what you need to get maximum return on your investment in offshore accounting.

Understanding Offshore Accounting

Offshore accounting is the delegation of your accounting services to a third-party accounting firm or professional in another country.

It allows firms in the U.S., U.K., and Australia to partner with offshore professionals in India, the Philippines, and Eastern Europe to enjoy lower labor costs and access a diverse pool of accounting talent.

How Offshore Accounting Differs from Traditional Accounting

Offshore accounting is not any different from traditional accounting in terms of tasks and client deliverables. The major difference lies in where the work is done, which affects labor cost, collaboration, and scalability.

Here are some of the differences in simpler terms:

• Location of Workforce: Instead of living in the same country as you (like in traditional accounting), your offshore staff are located in another country.

• Cultural Alignment: Since you’re in the same country as your staff in traditional accounting, everyone shares a similar way of life and communication.

In offshoring, accounting and CPA firms hire from countries that share similar cultural values. That is why offshoring countries like India and the Philippines are the most popular destinations for accounting firms in Western markets (the U.S., U.K., Australia, Canada, etc.).

• Cost: Traditional accounting is expensive to maintain in terms of recruitment, salary, and employee benefits. In offshore accounting, you only pay a fraction of a full-time hire’s base salary as a subscription fee.

• Data Security: In traditional accounting, you have complete control over your client’s information. In offshore accounting, part of your data security and privacy relies on your offshoring partner, which is why we advocate rigorous evaluation of your offshoring provider.

• Scalability: The traditional method of hiring is long and expensive. You have to send out job ads, evaluate candidates, conduct background checks, and manage payroll. In offshore accounting, you’ll get a pre-vetted professional through offshore accounting firms. Once they meet your skill and cultural requirements, you can employ them as soon as possible.

Why Accounting Firms Are Moving Towards Offshore Accounting

Industry-wide trends might have encouraged offshore accounting, but its numerous benefits have also played a huge role in the shift to offshore accounting in Western markets.

1. Trends in Outsourcing the Accounting Industry

• Workforce shortages: The accounting workforce in countries like the U.S., U.K., and Australia is shrinking as client demands are increasing, leading to more work than the local manpower can handle. Accounting and CPA firms are forced to look offshore for their capacity challenges.

“I never wanted to offshore in a million years. I want to support the US economy by hiring locally.

However, I found myself in a unique position I had not been in before. I was having a hard time finding the right fit for the right price. I had been given notice by two of our part-time staff.

I needed to replace them with full-time positions, and I could not find people with the skillset we needed who were within our budget.”

Rebecca Santiago, the Owner of Advance Professional Accounting Service

• Cloud Technology: The growth of accounting software (such as QuickBooks Online, Xero, and NetSuite) and accounting practice management software (such as Financial Cents, Karbon, and TaxDome) has made remote work and virtual collaboration easier, enabling accounting professionals to get work done from whichever part of the world they live.

• Specialized Offshore Providers: Offshoring firms in countries like India and the Philippines have specialized accounting professionals who are as knowledgeable in the generally accepted accounting principles (for U.S. firms) and international financial reporting standards (IFRS) as their U.S. and European counterparts.

This enables them to deliver accounting services (bookkeeping, tax, and financial audits) as accurately as local accounting professionals.

• Regulatory Confidence: Reputable offshore companies invest in data security and privacy infrastructure and certification in line with global standards (ISO 27001, SOC 2, and GDPR). This has made it easier for accounting firms to trust these firms with their client’s information.

2. The Benefits of Offshore Accounting

• Cost-Effectiveness: At around $2,600 a month for a dedicated accountant, the cost of using offshore services is significantly lower for several reasons. First, you wouldn’t need to pay a huge salary. Secondly, the lower cost of living and exchange rates in offshoring countries like India reduce labor costs significantly. Thirdly, you wouldn’t have to pay employee benefits since you’re not hiring them on a full-time basis.

• Flexibility:offshore accounting companies like Finsmart Accounting do not require you to sign a long-term contract. They allow you to use their accounting professionals for as long or as short as you need their services.

There is also the time-zone advantage. The difference in time zone enables firms to provide overnight services through their offshore teams. Increasing their turnaround time.

• Scalability: You can start with one offshore accountant and add more as your needs increase. This enables you to add more clients and grow confidently.

Offshore Accounting vs. Onshore Accounting – A Detailed Comparison

• Cost
  Onshore Accounting: U.S.-based accountants cost an average of $4,700 a month. That is exclusive of payroll taxes and other employee benefits.
  Offshre Accounting: Indian offshore accountants cost about $2,600 a month. No payroll tax, PTO, or any other employee benefit.

• Talent Availability
  Onshore: More accountants, especially CPAs, are leaving the profession than those coming into it, as confirmed by the AICPA report.
  Offshore: India alone has over 390,000 Chartered Accountants. About 20,000 new Chartered Accountants join the profession every year. The Philippines, South Africa, Vietnam, and Eastern Europe also have sizeable offshore accounting populations for hire.

• Certifications
  Onshore Accounting: Familiarity with local accounting standards. Every U.S. accountant, for example, understands the applicable financial reporting requirement (the GAAP), earning them the CPA license.
  Offshore Accounting: They are trained and certified in global accounting standards and tax laws with certifications (ACCA, CA, CPA) to show for it.

• Technology Proficiency
  Onshore Accounting: High adoption of cloud accounting software and local compliance tools.
  Offshore Accounting: Professionals are trained in relevant software like QBO, Xero, NetSuite, etc.

• Data Security
  Onshore Accounting: In-house control gives you more power over client data.
  Offshore Accounting: reputable offshore firms ensure strict adherence to data protection and privacy regulations and are certified in international security standards (such as ISO 27001, SOC 2 Type II, GDPR, etc.).

• Language & Communication
  Onshore Accounting: Native English speakers with local business and cultural awareness.
  Offshore Accounting: English-speaking workforce and strong understanding of Western business practices

Key Offshore Accounting Services Businesses Outsource

From basic transaction processing to client advisory, almost every accounting service can now be offshored, but here are some of the most common:

• Bookkeeping: When you assign bookkeeping work to your offshore employees, they can log into the client’s accounting systems (QuickBooks, Xero, NetSuite, etc.) to ensure complete and accurate financial records from transaction entry to year-end closing.

• Offshore Accounts Payable (AP): When you share your client’s invoices with your offshore team members, they will use AP software (Bill, Tipalti, etc.) to perform a two or three-way matching to ensure the information in the invoice matches with the purchase order and goods or services delivered. Then they will send the invoices for payment and generate reports accordingly.

• Offshore Accounts Receivable (AR): Your offshore team will generate invoices from your sales data and manage the collection process using email reminders and calls. They’ll track and reconcile payments and generate receivable reports.

• Tax Preparation: Once your offshore tax team receives client work papers, source documents, and prior-year returns, they’ll fill out the tax returns using your workflow checklist.

• Financial Planning and Analysis: Your offshore team will consolidate financial data from multiple sources, build budget models, create financial reports, and work with local consultants to ensure tax returns are filed according to country-specific requirements.

Offshore Accounting Compliance: What You Need to Know

Data Security Considerations

Data security is essential in offshore accounting because of the need to transfer sensitive data across borders. Here are the measures the top offshore firms use and how they work:

• Encryption: This technology converts data in transit and at rest to a cipher code, making it inaccessible to unauthorized persons.

• Two-Factor Authentication (2FA): Requires users to provide alternative means of verification to access accounting software, file-sharing systems, etc.

• Role-Based Access Control: enables firms to restrict access to client information to relevant employees.

• Secure VPN or Virtual Desktop Infrastructure: Limits the actions users can perform with information stored on a remote server.

Legal and Regulatory Compliance

To ensure legal and regulatory compliance, data protection laws and cross-border service agreements generally require:

• NDA and Data Protection Agreements: these prevent your offshore partner from sharing information with third parties without your approval and establish the terms and conditions for handling client data.

• Governing Legal Jurisdiction: Since offshoring involves more than one country, it’s crucial to define the legal jurisdiction that governs the relationship. This is usually the accounting firm’s jurisdiction.

• Cross-Border Data Transfers: for U.S. firms or firms serving U.S. clients, the Gramm-Leach-Bliley Act (and IRS Publication 4557 for taxpayer data) must be followed when sharing data across borders.

This is GDPR for UK and EU clients. PIPEDA for firms in Canada and the Privacy Act 1988 for Australian businesses.

Industry-Specific Compliance Needs

Here are some of the compliance needs of accounting firms serving businesses in specific U.S. industries:

• HIPAA Compliance: Handling healthcare-related financials or patient billing requires the protection of personal health information (PHI).

• SOX Compliance: accounting firms serving publicly traded companies must abide by the Sarbanes-Oxley Act’s requirement for internal controls and regular audits.

• CPA Firms: The IRS requires you to disclose your outsourcing practices to clients in writing, receive written consent, and use IRS-compliant client portals.

How Offshore Staffing Works in Accounting

Hiring Models in Offshore Accounting

Your chosen staffing model should be determined by the volume of work and desired level of control. Here are some of the most common options:

• Full-Time Equivalent (FTE): Here, you are assigned a dedicated offshore staff who will work for you alone, using your workflow systems and processes like your in-house employees.

This model gives you total control and oversight over your offshore team while the offshore firm handles their payment and compliance with labor laws. It is best for accounting firms with long-term needs.

• Task-Based Outsourcing: In this model, you assign work to an offshore firm. The firm will determine which of its employees will work on your project. When the assigned staff completes the work, it’ll go through a system of internal quality control before it is sent back for your review.

In this case, you have limited control over who does your work or how it is done. Different people can complete your tasks over time, which does not help consistency.

• Hybrid Model: This model combines the full-time equivalent (FTE) and the task-based outsourcing models, giving you access to both a steady and seasonal supply of labor.

The dedicated staff will handle recurring projects while the task-based staff will be assigned to you during the seasonal surges in workload.

Common Challenges in Offshore Staffing

Offshoring can be less rewarding if you don’t manage the following challenges effectively.

• Onboarding and Training Gaps: Even though they have all the technical accounting skills and expertise, Offshore accountants need training to understand your workflow systems and best practices.

You can make this process much smoother by documenting your standard operating processes using workflow checklists and walkthrough videos.

• Communication Delays: More often than not, time zone difference slows down turnaround time by delaying responses and approvals.

That is why reputable offshoring firms, like Finsmart Accounting, offer clients the option to adjust their work hours to suit their business hours.

• Data Security Concerns: Sharing your client’s data with another firm can be unnerving because it can reduce your control over the information.

Thanks to investments in security technology and certifications, the top offshoring firms have shown how easy it can be to keep client data secure, which is reflected in the client retention rate of the top offshoring firms.

Why India is a Top Offshore Accounting Hub

India is the most popular offshore accounting destination because of a combination of factors, which include:

• Deep Talent Pool: Every year, India graduates over 20,000 Chartered Accountants (CAs) who are trained in global reporting standards (GAAP and IFRS). It also has about 400,000 U.S. CPA-qualified professionals, many of whom specialize in advanced financial reporting, analysis, and audit.

• Global Expertise: beyond their rigorous academic qualifications, the average Indian offshore professional has years of experience serving clients in Western markets, especially the U.S.

At Finsmart Accounting, our U.S. tax managers specialize in the different IRS tax forms, such as 1120/1040/1065 preparation, sales tax, and industry-specific standards.

• Cost-Effective and Scalable: at $20 an hour and $2,600 per month for a dedicated accounting professional, Indian offshoring companies offer the cheapest rates and do not require long-term commitment.

This enables U.S. accounting firms to access as many accounting talents as they need for as long or as short as they need.

• Tech-Savvy Workforce: The Indian offshore workforce excels in accounting technology, from accounting software (QuickBooks, Xero, NetSuite) to tax software (UltraTax, LaCerte, Drake Tax) and practice management software (Canopy, Financial Cents, Karbon).

“The Finsmart team can work with any software you have. QuickBooks Desktop, QuickBooks Online, Xero, Bill.com, you name it! The Finsmart Accounting team is experienced. There is no learning curve, so we don’t have to train anybody. They’re already trained.”

Mariko Hayashi-Hall, Founder and CEO of Chicago-based Brilliant Solutions Group

• Commitment to Security & Compliance: Reputable Indian offshoring firms are committed to data security, and their enterprise-level cybersecurity infrastructure shows it. They use protected servers, managed switches, VPNs, etc.

They are also certified in relevant compliance standards like GDPR, ISO 27001, and SOC 2.

• English Proficiency: As a former colony of Great Britain, English is the official business language in India. It is the second-largest English-speaking country behind the U.S.

Moreover, offshoring companies ensure their employees are trained to work and collaborate with the clients in English.

Measuring the ROI of Offshore Accounting

Returns on investment in offshore accounting are both financial, operational, and strategic.

Cost-benefit analysis

• Direct Cost Savings

Role	Full-Time Annual Salary	Offshore Annual Subscription Cost	Savings
Accountant	$66,000	$32,000	$34,000
CPA Tax Preparer	$92,000	$36,000	$56,000

This is exclusive of payroll tax and other employee benefits you have to handle in onshore accounting, which you don’t have to worry about in offshore accounting.

Operational and Strategic Benefits of Offshore Accounting

• Ability to deliver overnight service due to time zone differences, which increases turnaround time.

• If you charge $600 a month for your bookkeeping services, and your offshore bookkeeper, who costs $2600, manages 27 clients, you’ll be grossing $16,200. Subtract the cost of hiring the bookkeeper, and you’ll have $13,600 in net profit.

• Delegating repetitive tasks to your offshore accountant means your in-house team can focus on client advisory and management.

Real-world Examples

Example 1:

How This 15-Person Firm Grew CAS Revenue to 50% Using Finsmart Accounting

When this 15-person accounting firm was crumbling under the weight of repetitive accounting work (bookkeeping, AP/AR, month-end close, etc.), they turned to Finsmart Accounting for help.

Within 18 months, our prequalified offshore accountants freed up their time, grew their client base by 30%, and divided their revenue streams into 50% client advisory and 50% accounting work.

Example 2:

How Finsmart Accounting Helped Account Ability Consulting Clean Up Three Years of QuickBooks Data

When a client needed a complex, three-year QuickBooks Online cleanup, Susan Cook of Account Ability Consulting turned to Finsmart Accounting for expert support.

Known for her firm’s QuickBooks training and integration services, Susan needed a reliable partner to execute this project.

Finsmart’s team collaborated with Susan through four key stages: assigning dedicated experts, maintaining detailed tracking, providing regular progress updates, and executing the work efficiently. The team ensured every step was documented and aligned with Susan’s specifications.

Thanks to clear communication and a structured approach, Finsmart transformed years of messy financial data into clean, reliable records, giving Susan’s client reliable financial records to guide their decisions.

“Finsmart was excellent at communicating and ensuring the work was done thoroughly. They provided spreadsheets, followed up diligently, and worked efficiently. If you have a financial project that needs attention, try it; you’ll find they are accommodating and reliable. You can feel confident that you’re in good hands.”

Susan Cook, President, Account Ability Consulting

Is Offshore Accounting Right for Your Business?

We understand that the key to ensuring maximum return on investment depends on your offshoring strategy and, more importantly, your firm’s readiness for an offshoring relationship.

That is why we have created the offshoring readiness guide, a structured assessment that helps you evaluate your current systems and processes to identify challenges you need to address to ensure a smooth transition and a successful offshoring relationship.

We hope you go into offshoring, not just because everyone is doing it, but because of its ability to meet your firm’s unique growth goals.

Do you want to learn more about offshore accounting? Click here to book a free consultation with Finsmart Accounting.