Financial reporting outsourcing is when a CPA firm hands recurring preparation work, such as reconciliations, month-end close schedules and draft financial statements, to an external accounting team, while the firm keeps review, judgment and client communication. Done well, it adds capacity without adding headcount and shortens the close.
Your CPA firm is expanding, has a full calendar of reviews and feels more like a team of report writers than trusted advisors. The month-end close is late, clients are waiting for quicker turnaround, and some senior accountants are still busy looking at spreadsheets at the end of the day.
The first instinct is to hire more people. But recruiting takes time, training takes resources, and every new engagement adds more work, especially around tax season staffing.
That’s where outsourcing financial reporting can assist. By delegating tasks such as defined reporting and accounting to an external team (your outsourcing partners), the CPA firm can boost the number of deliveries and consistency across its accounting practices. Additionally, the CPA firm can also free up time for in-house professionals for analysis, review and client engagement.
It is important to understand what things to outsource, which things to keep within your company and how to select a partner who understands your expectations.
What Is Financial Reporting Outsourcing?
Financial reporting outsourcing is the practice of having an external accounting or finance team to prepare, organize, reconcile or support in the production of financial reports.
For CPA firms, this usually means delegating recurring work for business clients, not the entire engagement, to an outside team. General ledger tasks, bank reconciliation, month end activities, general schedules, and draft financial statements are examples of activities which may be performed by outside personnel, depending on the agreement. Providers range from bookkeeping outsourcing companies to full-service finance and accounting firms, and the scope varies by provider, the client’s accounting system and your review needs.
The extent will vary based on the provider, the client’s accounting system and the provider’s review needs.
For instance, your client might require financial statements every month, but may not have well-organized financial records and thus will not be able to prepare them efficiently. An outsourced team can assist in the completion of agreed upon accounting tasks and the building of reporting schedules. Your firm’s experts can then look over the work, discuss any important accounting decisions and share those decisions with the client.
Financial reports outsourcing isn’t just a matter of handing work to other people. Their goal is to develop a process that can be repeated and provide consistent information to the appropriate people at the appropriate time.
A good deal will help increase the number of engagements for CPA firms, while giving the partners and managers a way to maintain oversight.
What Financial Reports Can Outsourced Accounting Prepare?
The reports and supporting work that is available will vary based on the outsourcing provider and scope of engagement. Here are some common areas.
1. Monthly and quarterly financial statements
An outsourced financial reporting team can create draft income statements, cash flow statements and balance sheets from the client’s accounting records.
The reports can be used to help clients understand the revenue, expenses, assets, liabilities, and cash movement. Your firm can then compare the results, explore any unusual fluctuations and discuss the numbers with the client and what they mean to their business.
2. General ledger and month-end close reports
The financial statements are as reliable as the records that are kept. Teams can be outsourced to help with general ledger maintenance, account reconciliations, journal entry preparation and period-end close activities.
They can also create a set of schedules that demonstrate the calculation of balances, making the review procedure more structured.
3. Bank and balance sheet reconciliations
Reconciliations are comparing the accounting records to other supporting documentation, like bank statements or loan statements. They provide assistance in identifying missing transactions, duplicate transactions, and unexplained differences.
An outsourced group can create reconciliations and highlight unmatched items for your company’s review as needed for the engagement.
4. Accounts receivable and accounts payable reports
Reports on Receivables and Payables provide clients with an overview of balances due and balances due from customers, and also enable them to view overdue invoices, etc.
An outsourced team can create aging reports and review balances to supporting records in order to identify unusual items. With this knowledge, your firm can have conversations with clients about collection and cash flow issues.
5. Inventory, fixed asset and expense reporting
There are additional schedules required for certain clients’ inventory, fixed asset, depreciation, expense and other industry-specific accounts.
An outside agency can assist in the preparation of these schedules and supporting documentation for review if the required source data and accounting policies are readily defined.
6. Management and customized reporting
Reports can be provided at department, location, project or business unit level, upon request by the client. If there is data and rules for reporting then outsourced teams can help to prepare agreed reporting packs.
However, assumptions and business judgments in management reporting should not be handled mechanically. They require proper professional supervision.
Can Financial Report Preparation Be Outsourced? What Stays In-House
Yes. Certain reporting activities are subject to delegation, but the CPA firm’s professional responsibilities cannot be delegated.
The ideal way is to isolate the preparation, review, and decision making process.
Work that may be outsourced
Depending on the provider’s capabilities and engagement terms, this can include:
- Transaction classification and general ledger support.
- Bank and balance sheet reconciliations.
- Preparation of recurring reporting schedules.
- Draft financial statements and management reports.
- Month-end close checklists and supporting documentation.
- Identification of unusual balances and unreconciled items.
Work that may remain with your firm
Your firm should retain appropriate control over:
- Accounting judgments that require professional evaluation.
- Review and approval of financial reporting deliverables.
- Client-specific decisions about accounting policies.
- Material adjustments and unresolved discrepancies.
- Client communication and final deliverable approval.
- Engagement acceptance, risk assessment and quality management.
The division of work is not the same for every firm. It should align with engagement, relevant professional standards, client agreements and qualifications of all parties.
Prior to outsourcing, establish the following: Who prepares the various schedules, who reviews the schedule, who makes any adjustments and who communicates with the client. This will help prevent confusion in the lead up to deadlines.
How Financial Reporting Outsourcing Improves Accuracy and Timeliness
Accurate reports can’t be achieved by outsourcing. The improvement is the result of a confluence of clear processes, appropriate expertise, reliable documentation and consistent review.
More consistent workflows
The preparation team has a clearly defined sequence of tasks through a standard month end checklist. It can identify certain accounts that need to be reconciled and identify certain schedules that need to be prepared and how unresolved questions will be documented.
This helps to minimise the likelihood of key actions being overlooked if there are changes in staffing or role changes.
Better visibility into outstanding issues
The reporting process is not merely about statements. It helps you to see what is missing.
For instance, if there is an unexplained difference in the bank reconciliation, the preparer should make a note of it and ask a question instead of simply taking the discrepancy on account. A structured exception list assists the reviewers to concentrate on points deserving of attention.
More predictable reporting deadlines
Once responsibilities and handoff dates are pre-defined, the team can schedule work around the monthly close calendar.
Your company can set deadlines for requesting client records, finalizing reconciliations, preparing draft reports and finishing reviews. These milestones help you to recognize delays and help your child get help more easily.
More time for professional review
If there’s a clear procedure for routine preparation, your internal team will be able to devote more time to analyzing big changes, looking at accounting problems, and discussing the results with clients.
This matters because reporting support should enhance professional oversight, not replace it.
How an Outsourced CFO Extension Fixes Reporting Problems for Complex Clients
Some clients require more than correct financial statements. They require assistance in comprehending the reasons for the result changes, whether cash flow is feasible and which financial adjustments are worth management’s attention.
Depending on the provider’s services and scope, an outsourced finance or CFO-level extension might be able to assist with more complex reporting requirements. A growing company might need monthly statements, budget-to-actual reporting, cash-flow forecasting and multi-location reporting. Your firm may be able to advise on the technical issues without having the capacity to prepare every schedule in-house.
For instance, a company that is expanding in size might require monthly financial statements, budget to actual reporting, cash-flow forecasting and reporting for multiple locations. A CPA firm may be able to provide the client advice on the technical aspects but not be able to prepare all the schedules in-house.
An external team can assist the underlying reporting process, with the firm’s professionals having responsibility for reviewing and giving advice to clients.
This is a great set up for a client whose needs go beyond what standard bookkeeping entails, but not so extensive that it’s worthwhile to hire all of the roles to join the firm’s payroll.
But, reporting support and CFO advisory services are two different things. If forecasting, financial modeling, strategic recommendations, etc. are required for the engagement, verify that the provider has the skills needed to complete that task and not assume that basic reporting services contain them.
Who Should Outsource Financial Reporting?
Financial reporting outsourcing may be worth considering if your CPA firm experiences one or more of these situations:
- Growing client demand: Your firm is taking in new business projects that it cannot reasonably complete.
- Recurring reporting pressure: Month-end and quarter-end deadlines continually cause bottlenecks.
- Limited specialist capacity: Your team has few specialists, and they lack the time or experience to handle specific reporting needs.
- High preparation workload: Senior staff spend a lot of their time on the completion of routine schedules, instead of checking the work.
- Inconsistent client records: You need a more organized approach to chasing missing data and unresolved balances.
- Seasonal workload changes: Staffing needs fluctuate throughout the year and it is not always feasible to have permanent staff.
- Expansion into advisory services: You’d like your workers to focus more time on interpreting financial data and discussing business decisions.
While outsourcing can make sense for some firms, it may not for your company if you don’t have proper processes or don’t have appropriate source records or if you expect that an outsourcing team can fix all of your underlying problems with your client’s accounting issues without needing additional time or money.
The first step is to determine the bottleneck. Then decide if outsourcing, changes to their processes or a mix of both would solve it.
How to Choose a Financial Reporting Outsourcing Partner
The provider you choose will affect your workflow, review burden and client experience. Evaluate more than the quoted price, and use a partner vetting checklist so every candidate is assessed the same way.
1. Check experience with CPA firms
Inquire if the provider has an understanding of recurring client engagements, month end reporting, reconciliation standards and review workflows.
Talk about the types of clients and accounting environments they will be able to assist. If your business operates in more than one industry, be sure the provider can handle the industry-specific reports.
2. Define the scope clearly
Request written explanation of scope of work, products, timelines, and scope exclusions and responsibilities.
Clarify whether the service includes reconciliations, draft statements, supporting schedules, follow-up questions and correction of errors. Also set up for cleanup work or any special transactions.
3. Evaluate quality control
Inquire about work review prior to delivery, exception escalation, and corrections.
A good process should enable review by providing reconciliations, supporting schedules and explanations of any unusual balances, not just a completed spreadsheet.
4. Review technology compatibility
Verify that the provider is compatible with your accounting systems, reporting requirements and secure document-sharing capabilities.
Discuss sharing rights, file naming, version control and sharing updates. Avoid shared logins; require named-user access so every action can be traced to an individual.
5. Examine data security
Financial reporting contains confidential business and client information. Questions: What are the access controls, how is the data handled, are any confidentiality agreements in place, how is it transferred securely, what are the retention policies, what are the procedures for incidents.
Don’t rely on the provider’s claims alone. Ask for proof of the controls that are relevant to your firm’s needs.
6. Understand communication and escalation
If records are lost or a deadline is in jeopardy, your team should be aware of whom to call.
Set responses times, escalation contacts, review cycles and form of outstanding questions. Communication should not be an add-on to the service design.
7. Compare total cost and value
Don’t just consider the rate or fee per hour or month. Consider onboarding, cleanup, software requirements, internal review time, additional work charges and the cost of correcting avoidable errors.
But the cheapest partner isn’t necessarily the right one. It is the one that is reliable and provides you with workable price and quality for your firm.
Get more done at review time, not more hires.
Find out how CorientBS supports CPA firms with reconciliations, close schedules, and draft financial statements.
People Also Ask:
What financial reports can outsourced accounting prepare?
The types of documents that can be provided in an outsourced accounting service depend on the scope of the engagement and the provider; some accounting firms will prepare draft financial statements, bank reconciliations, general ledger schedules, accounts receivable and payable reports, fixed asset schedules and management reporting packs.
Is outsourced financial reporting white-labeled under my firm’s name?
It will depend on the service model offered by the provider, as well as an agreement agreed upon in writing. Make sure that white label delivery options are available and if so, how will the clients be updated and who will be doing it and reviewing it and making the final decision. It is not a given that all outsourcing companies provide white label services.
How much does it cost a CPA firm to outsource financial reporting?
The fees depend on the volume of transactions, the level of reporting, accounting software, the report turnaround time, clean up and the amount of review and/or advisory services required. Ask for a scope quote instead of price quotes without knowing what they are covering.
Does outsourcing financial reporting affect my firm’s peer review or quality control standards?
Don’t assume that outsourcing takes away your company’s professional liability. Requirements are dependent on the engagement and professional standards. Check your quality management policies and client contracts and relevant professional advice before assigning work.
Can a small CPA firm outsource financial reporting?
Yes. A smaller company might prefer to contract out certain ongoing tasks, rather than having a dedicated reporting team or lean on an offshore accounting team for peak periods. The structure needs to be consistent with the amount of clients the firm serves, the number of reviews it conducts, the budget and the need for data security.
Conclusion
Financial reporting shouldn’t be a pain point for your team – it should be clear for your client.
By outsourcing financial reporting, CPA firms can boost capacity, apply a consistent approach to the same work and spare time for professional review and client guidance, provided that there is clarity over responsibilities, quality controls and communication.
First, determine which reporting tasks take the most time, and then take on responsibility for which tasks can be delegated safely and efficiently.
If your firm is considering more reporting capacity, consider Corient’s related finance and accounting services, validate the services are suitable to your needs and collaborate on an appropriately defined arrangement before entering into it. It’s all about reliable reports, a manageable review process and more time for doing the work that makes you valuable to clients.
