The market of external accounting services

There has been a lot of talk about the crisis in Latvia’s economy lately. Many companies are reducing their work force to cut costs. Unemployment rate reports by professions compiled by the State Employment Agency show that accountants form one of the biggest groups of job seekers today. It means that, having analyzed their internal situations, businesses tend to reduce their accounting staff, among other measures. In such cases the next step to be taken by the management is either to opt for outsourcing or reassign duties and responsibilities among the remaining accounting staff.

The first step towards an unbiased assessment of current situation is an audit of accounting function, which will contribute to a fuller understanding of who does exactly what at the company and which functions are redundant or lacking. As a result, it will be easier for the management to decide what is better – reorganizing the accounting department within the company or settling on outsourcing. In other words, the management will be able to assess what qualifications are required by which functions within the company. There will definitely be situations calling for a highly qualified accountant, and there also might be situations when young specialists and hence lower labour costs are the best option. The main thing is to realize that a non-professional will not be able to organize a company’s accounting processes in a professional way. Otherwise it could result in a grave disappointment mirrored by problems with the State Revenue Service.

If one opts for outsourcing, it is essential to closely examine the competence and experience of the chosen accounting company. Civil liability insurance is another important point to pay attention to. If an accounting service provider has it, it undertakes liability for risks resulting from incompetent performance of accounting services. It is advisable to send requests to several accounting companies before making one’s choice to see what the market has to offer. Unless one carefully verifies the qualification and professional experience of the chosen accounting company one’s accounting is potentially exposed to serious risks.

The market of accounting service providers seems to be in a state of chaos. The question then is – why? The current situation is that anyone can start an accounting company after a couple of months of accounting training. The next question then is – does such training provide enough knowledge and experience (which sometimes starts with the first client) to successfully resolve any accounting issues? It may seem so at first – as long as there are no problems with SRS or solvency related issues; it is then that one starts to wonder: „what’s been going on in my company’s accounting?” And sometimes it is already too late to painlessly change the situation for the better. A skilled accountant is a managing director’s right hand. Their efficient cooperation is a prerequisite for successful development of a company.

Therefore, in order to improve the environment in which accounting service providers operate and to raise their professional level standardization is called for. I believe it can hardly be accomplished without the support of the Republic of Latvia Ministry of Finance. In order to attract the Ministry’s attention these problems must be talked about openly and clearly. It must be explained and shown through examples that the current situation when any person can start an accounting company and run it as that person pleases concentrating on the quantity of customers rather than on the quality of services is absurd and undermines the prestige of the profession. There have been cases when an owner of a medium-sized company, having used external accounting services for some time and having had a sad experience out of it, could not be persuaded to try external accounting services ever again.

At the end of the year 2008 I visited several accounting companies in Finland and saw quite a different picture there – accounting services in that country are used by more than 50% of businesses of all types and sizes. Importantly, there is an Association of Finnish Accounting Firms in Finland, which regulates good accounting practices for accounting companies and establishes standards that must be complied with by the members. The winners in this case are clients who, when signing an agreement with a member of the Association, are sure that their accounting is in the hands of professionals and that the quality of the services they receive is guaranteed by the Association. Why cannot this principle be introduced in Latvia?

The market of external accounting services must be regularized now when businesses are striving to reduce their costs and survive the economic crisis, because external accounting services can help economize. It is no secret that during the „fat years” businesses often employed employees overlooking the question of their efficiency – work force was in short supply. Accounting personnel wasn’t an exception. I have often heard of companies with 50 employees who employed as much as 3 accountants. The question is – what their duties were?

Here we have uncovered the reason why the social status of accountants in Latvia is so low. The predominant opinion is that an accountant at a company is almost a parasite, because it is hard to figure out what his job is. It is possible that this viewpoint originates from Soviet era. This kind of the public’s experience cannot be undone all that easily. In other countries, on the contrary, qualified accountants are among the top-paying professions. This only shows that one has to win one’s place under the sun and prove oneself worthy of it. It must also become clear that high-quality work, which requires precision and deep understanding of a client’s business and of how it relates to legislation, combined with ability to solve complex situations cannot be cheap in the end. Of course, price is not always the main criterion. In my experience there are enough businessmen who respect intellectual property and the price that has to be paid to use it, which is not always the lowest one.

It is generally known that one cannot become a professional accountant in one day; neither can it be done after a couple of months training. An accountant must incessantly improve his qualification, because the ever-changing business environment today requires an ability to adjust to changes and acquire new knowledge in order to maintain and broaden one’s outlook. The role of an accountant in a small company is much wider than that of a data processing specialist. Sometimes an accountant even acts as a financial director and must therefore be capable of predicting and planning the company’s activity in long-term perspective. For that reason good education and adequate qualification are particularly important.

There is an association of professional accountants in Latvia, which issues professional certificates to private individuals. Those who have received a certificate from the association generally have a positive opinion about the certification process. In order to receive a certificate an accountant must have appropriate education and experience and pass complex examinations, which in addition to accounting also cover financial and tax management issues. To master all these topics an accountant must study a lot, read additional information and consult other specialists. This ensures that professional skills are improved not just on paper, but also in actual practice.

Where is the problem then? The certificate doesn’t seem to work. Why?

First of all, the certification process is mostly paid for by employers. More often than not they are encouraged to do so by their accountants, because an employee is always eager to raise his value in the eyes of the employer; it also proves to the employer that the accountant his company employs is a real professional and the company’s accounting is thus in good hands. So, a certificate in this case chiefly contributes to an accountant’s personal growth.

Secondly, if an accountant wants to offer his services to an international company he must successfully pass that company’s staff selection process where he will have to prove his experience and knowledge all over again.

I believe that the first thing to do towards an orderly market of accounting services is to give a clear definition of an accountant, a bookkeeper and a highly qualified accountant entitled to conduct business activity in the market of external accounting services.

As far as the interests of employers and company directors are concerned, it must be remembered that whomever a company appoints as its accountant the person responsible for accounting records within that company under Latvian legislation is always the head of the company with all that it implies.

When a company signs an agreement with another legal entity – an accounting service provider – it is an agreement between two business partners equally interested in successful long-term cooperation. It is in the interests of an accounting company to preserve the trust of its clients, so that it can enjoy good reputation in the local market. The client at the same time acquires a qualified and stable business partner who specializes in various business segments and is capable of dealing with complex and unconventional business situations.

Finally, I would like to note that people are different, and accountants are but people, therefore it cannot be left entirely to the conscience of each individual how well, how honestly and professionally a job will be done. An accounting company can ensure proper control, it can also replace an accountant with another specialist should it be necessary; all these measures provide for higher confidence in the quality of accounting services. We as providers of accounting services have to join our efforts to regularize the market and raise our professional standards so that our clients can stop worrying about what is happening in their accounting records and manage their businesses in a more efficient way.