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Five reasons for outsourcing bookkeeping in China

(May 8th, 2014)

By Manuela Reintgen, ECOVIS Beijing

Many business owners can, effectively, only manage a handful of staff. Rather than doing everything internally and specializing in all relevant business activities, business owners should think about what activities to outsource. Outsourcing is when a company subcontracts an outside person or firm to provide a product or service such as bookkeeping or payroll processing. This article gives five reasons for outsourcing bookkeeping in China:

five_reasons_for_outsourcing_bookkeeping_in_china

Experience & Liability

Accounting firms with many years of practical experience work with various clients regardless of their industry or size and are able to apply the latest knowledge of compliance and regulatory guidelines. The accountants are not only up-to-date with the latest accounting practices but are also experienced in optimizing taxes and filing all relevant documents on time. You may find that you get better financial advice with an accounting company which in return could save you large amounts of money later. Furthermore, an accounting firm is liable for its work, whereas a local employee who leaves can hardly be held responsible.

Expenses

All relevant management activities including the manager’s time for directing, negotiating, firing and hiring have to be considered when deciding whether to outsource the accounting work. An in-house accountant may relieve this workload but in return demand salary, allowance and social insurance which have to be paid regularly. Additionally, a working desk has to be provided and a Chinese bookkeeping software has to be purchased at a high price. In the long run, outsourcing your bookkeeping can end up saving you money by eliminating some of the above mentioned expenses as well as fees that come from accounting errors. The expenses for the outsourced services may likely turn out to be less than the savings you get with the better financial reporting and advice by a specialized accounting company.  Some companies may think of having an administrative person filling the job. However there is the big risk that deadlines are missed and penalties have to be paid or that the annual audit fails. The own staff can instead concentrate on work that is revenue generating, essential to business operations and in accordance with experiences.

Salary & Pricing

One of the most outsourced financial practices is payroll processing. Payrolling can be complicated and many firms do not want to share salary details with internal stakeholders. This mistrust mainly arises from the high turnover of Chinese employees. When an in-house accountant leaves the company there is the risk that competitors may get access to information such as the salary of employees or the price of supplies. In the case of salaries, employees in China could be easily convinced to join a competitor if they pay a higher salary. Many Foreign-Invested Enterprises in China use the services of a FESCO (Foreign Enterprise Service Company) for labor dispatch and payroll. The danger here is that some FESCOs are also engaged in headhunting. In this case, the FESCO which also finds employees for its headhunting clients has all the confidential personal and salary information of the payroll clients and can use them for their headhunting clients so that these may approach the employees and negotiate lucrative employment deals.

International Reporting

There are differences in accounting regulations between countries. The employees of an accounting company like ECOVIS Beijing are familiar with the most up-to-date reporting standards. They are experienced in applying the different guidelines and rules, for instance of the IFRS (International Financial Reporting Standards), the PRC GAAP (Chinese Generally Accepted Accounting Principles) or the HGB (Handelsgesetzbuch) of Germany and the HGB of Austria. Through an accounting firm the cooperation with the company’s headquarter can also be improved since the accounting firm understands the differences in the company’s main language.

Quality and Compliance

Finding a qualified in-house accountant in China can be a hard task. Companies must work with the international headquarters. The accountant must therefore have good language skills and understand the overall company well. Additionally, it may be hard to control whether everything is done in accordance with the laws and regulations and within the deadlines. At an accounting company like ECOVIS Beijing, always two experienced accountants are responsible for one client – this ensures high quality control.

With contributions by Markus Mönch (ECOVIS Beijing)

Manuela Reintgen Manuela Reintgen has been living and working in Shanghai and Beijing since 2009 and recently joined ECOVIS Beijing as Manager of the Business Development team. Having focused on foreign direct investment into China for the last few years, she advises clients on all aspects of establishing and doing business in China. Contact:
manuela.reintgen@ecovis.com
Ecovis Beijing is the trusted tax and legal advisor of several embassies and official institutions in China. It specializes in mid-sized international companies and focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter or give us a call  +86 10-65616609 (ext 811/806)   or contact us directly via Beijing@ecovis.com
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Author:
Richard Hoffmann
richard.hoffmann@ecovis.com
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