Off-Shoring of Tax Preparation Services by U.S. Accounting Firms: An Empirical Study

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For purposes of this study, off-shoring is defined as the procurement of services by CPA (certified public accounting) firms outside the United States through electronic media. The term outsourcing in this study refers to procurement of services outside the firm, but inside the U.S. A review of current literature indicates that off-shoring of accounting services has been increasing and will continue to increase in the future. A survey was conducted yielding a sample of thirty-five (achieving a twenty percent response rate from a population of 175) of the top accounting firms in seven major U.S. cities. The authors encountered resistance from several firms in obtaining information because of the sensitive nature of this topic. The most significant finding from the sample data was that an increasing trend in off-shoring was not evident. Thirty-seven percent of the responding firms off-shored only limited amounts of tax return preparation to India, a country that possesses an abundance of English-speaking, trained accountants. In making the off-shoring decision, both cost-savings and non-cost related factors played a role. Almost half of the firms reported a negative impact on the firm from the decision to offshore and most claimed to experience negligible cost-savings. More than half planned to decrease or discontinue off-shoring in the future. The increased disclosure requirements of the American Institute of Certified Public Accountants (AICPA) and various State Boards of Accountancy along with the fear of losing clients may have influenced firms' decisions not to pursue off-shoring more vigorously. In the next phase of research, intermediaries or third-party service providers identified in this study may be contacted to gain more insight into the actual and relative volume of tax work done off-shore and the future direction of off-shoring activity in accounting firms.


Current literature regarding the patterns as well as costs and benefits of U.S. manufacturing firms in subcontracting or outsourcing production and assembly tasks to newly industrialized countries (NICs) and emerging markets such as India and China is rich and abundant as these processes have gained much attention during the past fifty years. Improvements in productivity, cost efficiency, quality, and performance have been among the primary reasons that have encouraged companies to subcontract non-core activities to locations around the globe offering a comparative advantage (Dankbaar, 2007; Slaughter and Soon, 1996). However, externalizing or subcontracting in the services sector to off-shore locations, specifically in the business services sector, has also been growing rapidly in the past two decades. Albeit the lack of reliable national data, various published studies indicate that over a million service-sector jobs in the United States have been sent to off-shore locations to date.

Farrell et al. (2006) report (based on an examination of eight industries) that an estimated eleven percent (11%) of service jobs could be completed remotely in off-shore locations as the specific tasks require "neither substantial local knowledge nor physical or complex interaction between an employee and customers or colleagues" (Farrell et al., 2006, p. 24). Continuous advancements in technology and digitized communications only assure the increase of off-shoring of "impersonal services" or services that can be delivered electronically over long distances with little or no degradation in quality (Blinder, 2006). Published work in academic and trade-related journals, although limited, have focused primarily on identifying the criteria for successful outsourcing (on or off-shore), factors for choosing the right location and vendor, and the taxonomy of operating and strategic processes suitable for externalization (Farrell, 2006; Aron and Singh, 2005; Shamis et al., 2005). However, comprehensive studies at the industry and firm level of the nature and extent of outsourcing and off-shoring of services are rare, with one example being in the hotel sector (Espino-Rodriguez and Robaina, 2005). …


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