Outsourcing your Bookkeeping / Accounting Function

[livingontheedge]

For Small Business Owners, I would just like to understand what are the benefits from outsourcing your bookkeeping / accounting functions to an outsourced accountant?

Accounting is a pretty simple and straightforward task - pretty much just to record your daily income and expenses - why pay the fees to outsource such administrative matters that you can handle yourself on your laptop?

If you do employ outsourcing, what are some of the difficulties, shortfalls and frustrations that you face from the accountants?

[Strong Eagle]

Three reasons to do it. If your income and expenses arise as a result of a lot of transactions, the process can become very time consuming, especially if you are doing job costing.

Second, you need to be fully aware of GAAP. If not you will record in error. For example, you sell a contract for a year's worth of services. The uninformed business owner will assign the entire amount of the contract to sales (income), with a corresponding entry in A/R. GAAP requires that you recognize revenue only when the associated services are delivered.

So, the actual transactions look like this. Asset account, "Services to be Performed", and a liability account, "Services I Must Perform" receive the initial transactions. Each time you perform a service, you recognize a portion of the income.

You must also know how to match expenses to revenues. For example: You have an employee that travels to JB by bus weekly. You buy a year's worth of tickets at a discount. You can't claim the whole thing as an expense, only the portion when the employee travels to JB as part of a revenue generating stream.

You also need to handle depreciation, amortization, etc. Salaries must be broken out if directors fees are part of them. CPF (employee and employer) must be maintained. GST must be recorded and paid if over a million in revenues (or you elect to become a GST trader). Thus, if you don't understand GAAP, or you don't want the hassle of the additional transactions, use outside help.

Third, audited statements will be cheaper if your accountant has already organized your books and classified your transactions. If you walk in with your own set of books and transactions, no accountant will give you an audited report without a thorough review of your transaction treatment. Audited statements are required if you are on Entrepass, usually required by any bank, credit card company, or equipment lender if you want credit in your company's name.

[katbh]

It sounds like you have a pretty simple business. If this is the case, you can do the same as our company. You do your own books. Excel is fine or you can even just do by hand. I give my accountant my excel books with the addition of a summary page for the whole year.
For $500 they do my accounts for the year for ACRA and for IRAS. Do not forget that if you are running a company you need ACRA returns.
If you are running just a SP business, it is even simpler and you should be able to do it all yourself.
However, if as Strong Eagle says, you have more than just straight 'in' and 'out' transactions, it is a good idea to always get an agent to do you tax. It is my long held belief, that if you efile through an agent you are less likely to get audited by IRAS, inland revenue, ATO etc - and no one wants to be audited.... it is harrowing!

[Saint]

^^ This

Even a not so simple business, this is what we do

[sundaymorningstaple]

- and no one wants to be audited.... it is harrowing!

Yep, I've attended over 1000 audits during an 8 year span as the District Director of H & R Block in Washington DC in the 1970's. Fortunately, none of them were mine. I was once audited after I left and became a diver in the Gulf of Mexico. Went to the Audit, the auditor looked very familiar and when she started going through my records, she remembered who I was. She was formerly from the Baily's Crossroads, VA, IRAS office and I'd attended a number of my clients audits with her. She had gotten married and transferred to the IRS office in Louisiana from Virgina. Once she realized who I was, the audit was over. We had a chat and that was it. Like she said, it would be a waste of her time and mine as she was sure it would be iron tight (it was). Interesting coincidence though.

[livingontheedge]

Are there any difficulties or frustrations that you currently face from your outsourced accountants or if you do the accounting yourself, your accounting software employed.

What are additional value-adds and/or services that you hope your outsource accountants or accounting package can provide for you but significantly lacks?

For example, your outsourced accountants or audit report only presents a balance sheet and profit & loss. But is unable to produce reports for monitoring purposes for your strategic business decisions - such as sales and profit margin reports by products, ageing of your inventories and fixed assets, 13 week cashflow forecasts.

"Third, audited statements will be cheaper if your accountant has already organized your books and classified your transactions. If you walk in with your own set of books and transactions, no accountant will give you an audited report without a thorough review of your transaction treatment. "

By the way can the same accountant also be the auditor of that account?

[katbh]

No problems with my accountants. I send in my accounts once a year and they do ACRA and IRAS with no more input from me (except to write a cheque).

All other reports are produced internally from the accounting worksheets.

Are you sure you need an auditor - most small businesses do not.

The great advantage is that the accountant e-files your returns. This shows IRAS and ACRA that you have used an accountant and that the accounts are correct and comply with their professional standards. You are therefore less likely to be audited.

[sundaymorningstaple]

Unless your turnover exceeds 5M you do not need audited accounts.

[Strong Eagle]

Unless your turnover exceeds 5M you do not need audited accounts.

Or, you have no intention of getting company credit cards, a company line of credit, or are applying for equipment financing. If you are doing any of these activities, audited reports are a must as no institution that I am aware of will take unaudited reports.

[katbh]

Company debit/credit cards are available for unaudited accounts.

[Strong Eagle]

Company debit/credit cards are available for unaudited accounts.

So... you think a bank is going to take a set of financials that could have been completely made up? Unaudited means that no second set of eyes (eyes which can be sued for failure to follow the rules) has looked at your clever recording of revenues, expenses, and profits.

You might be able to get a debit/credit card without audited financials but only if you have already guaranteed your debt with a deposit.

You're also not going to be able to take advantage of various government programs without audited statements. It's just not possible to tell if you're making stuff up, otherwise.

[katbh]

Your accountant is registered. They prepare your accounts and they have a fiduciary duty to ensure that what they report to IRAS is accurate. This gives you some protection. I know that banks will give low limit credit cards, and Visa Debit cards to companies with unaudited accounts - as long as the accounts have been prepared by a registered accountant.

[ScoobyDoes]

I have an external accountant come in one day every quarter to complete our GST filing and Bank Reconciliation, and fix any problems I maybe entered incorrectly.

We don't quite qualify for an Audit requirement but we have the books checked anyway by a third party prior to our accountant doing eFiling.

It costs more than doing it ourselves but I feel happier with the books being checked prior to filing, since I am the one ultimately taking responsibility for their accuracy. Added to that, it installs the procedures that will be called upon as the company grows and a more formal Audit/Filing will be necessary.

[Strong Eagle]

Your accountant is registered. They prepare your accounts and they have a fiduciary duty to ensure that what they report to IRAS is accurate. This gives you some protection. I know that banks will give low limit credit cards, and Visa Debit cards to companies with unaudited accounts - as long as the accounts have been prepared by a registered accountant.

Unless your accountant is actually handling all your transactions, he/she, registered or not, will always include a statement that the books are accurate, based upon the transactions they received. But, they will never comment upon the transactions themselves because they have been provided by you.

Anyway, my point about audited accounts is this: If you are small, don't intend to ask for credit, have very simple accounting processes, do it yourself. The only organizations that will care about your accuracy and truthfulness are IRAS.

If you have an Entrepass you must file audited accounts. If your intent is to position your company as a dynamic, growing, then you'll go the audited accounts route anyway.

[livingontheedge]

Basically small enterprises (by the way I am asking about small enterprises - medium and large enterprises is quite obvious they need accountants) need simply due to the volume of transactions to record.

My own observation is that for large complex arrangements and transactions - the accounting measurement and treatment to record in the books is handled directly by the Directors and the accountant simply keys in the Directors' instructions for recording the financial impact.

So........in terms of advisory on accounting treatment.........doesn't seem like the outsourced accountants do much.