why do big companies get their accounting done by accounting firms when they could afford to do it on their own?


why do big companies get their accounting done by accounting firms when they could afford to do it on their own?

In: 12

Big companies do do (hehe) their own accounting, the larger the size of the company, the bigger an accounting department to be found. But the companies have a lot of responsibility when it comes to the stakeholders, so a way to validate the accounting. The big companies that dont do their own accounting is simply because its easier. Less effort for the same result, with less things to keep in mind.

For the same reason many functions are contracted to other companies: it saves money.

Company A could either hire their own accountants, which means paying them full time salaries, benefits, and payroll tax; or they could contract with Accountants Co. and just pay them for the time they actually use. Accountants Co. can then afford to pay for the salaries, benefits, and payroll tax of their accountants by contracting with Companies B, C, D, and E as well.

This is also why it’s rare for corporations to hire their own service and support staff like janitors, maintenance, etc.

It isn’t always cost effective. Most large firms have a large internal finance department and will handle the majority of the accounting work at the corporate level. However, there are reasons to hire outside

1) Specific expertise. Certain areas like tax are very specialized and external consultants who are experts in that field are needed. Also things like automating accounting/financial functions require a lot of IT and software package knowledge, and large parts of that might be better done using external firms.

2) International accounting. Large firms operate in many countries. Each country has accounting rules and the firms have to prepare local accounts in accordance with the regulations in that country for every country it operates in. It doesn’t make sense for a firm to hire accountants for every country they operate in, so they hire consultants instead.

3) Law. All publicly traded companies are required by law (in the US, the SEC regulates this) to prepare and have accounts audited by third party firms who attest (under law) that the firm prepared their accounts properly.

4) Cost savings. It just might be less expensive to have an accounting firm do some of the transactional accounting. Large firms also (typically) pay large salaries and bonuses to their full time employees. A part of their accounting needs might be fairly simple and the firm outsources instead of hiring full time employees.

Liability. If something goes wrong with taxes they didn’t do it the accounting firm is liable and share the fault. That’s the biggest reason as well as cost.