Accounting across borders

Benchmark survey assesses thriving international services area.

BY YASMINE EL-RAMLY, CPA/CITP
May 1, 2014

More than 6 million U.S. citizens live in other countries. Those Americans, and expatriates who reside in the United States, require a variety of tax and related services. At the same time, no matter what size the organization, more and more businesses are looking across borders to expand their prospects. To better assess this thriving practice area, the AICPA Private Companies Practice Section (PCPS) polled U.S. accounting firms on their international services.

Sixty-four percent of small companies sold merchandise or services to a customer outside the United States in 2013, up from 52% in 2010, according to the National Small Business Association (NSBA) 2013 Small Business Exporting Survey (available at tinyurl.com/owul3m8). Sixty-three percent of nonexporters said they would be interested in selling to a foreign client in the future. The trend toward more globalization is likely to continue for U.S. companies, since more than 70% of the world’s purchasing power is located outside the United States, according to U.S. Department of Commerce data.

INTERNATIONAL IS TOP-OF-MIND REGARDLESS OF FIRM SIZE

79% of respondents project international growth in the next five years.

CPA firms, regardless of their size, are finding international services a booming business, results of the PCPS survey show. The survey was designed to gauge practitioners’ interest in expanding to new markets and growing an international clientele. Firms also named their top international challenges and needs.

Half of sole practitioners and 71% of small firms polled forecast international growth. By comparison, among the largest firms responding to the survey, 97% expected these services to grow.

Despite a notable interest in international matters, 19% of survey respondents were not currently offering international services. In that group, a little more than one-third (35%) had no plans to offer international services during the next five years.

INTERNATIONAL SERVICES CLIENTS DEMAND

Primary international clients of sole practitioners and firms with up to 20 CPAs are U.S. citizens living abroad. Larger firms are much more likely to work with overseas subsidiaries of U.S.-based multinationals.

The service that was most in demand was preparation of U.S. tax returns for international clients, which was performed by 95% of respondents. Services related to reports of foreign bank and financial accounts (FBAR) came in second (69%), followed closely by U.S. financial statements (65%). More than half (54%) offered expatriate tax returns; foreign asset reporting was another strong niche (43%).

FBAR services came in second among firms with fewer than 21 CPAs, while U.S. financial statements were the second most prevalent service for larger firms.

Among sole practitioners, 41% also offered FBAR reporting, and the other three choices—U.S. financial statements, expatriate tax returns, and foreign asset reporting—were tied at 18%. Firms with two-to-20 CPAs generally followed the same pattern but in larger numbers, with U.S. tax returns a clear leader, followed by FBAR reporting, then U.S. financial statements. Firms with more than 21 CPAs were far more likely to perform all of these services, with more than 95% doing U.S. tax returns and 80% doing U.S. financial statements for international clients. At least 75% of the largest firms offered all the services mentioned here except foreign asset reporting, which was offered by 51%.

TOP COUNTRIES FOR FUTURE SERVICE GROWTH

Top Export DestinationsOf the largest firms, 69% were looking to China for growth, followed by 58% to Canada and 53% to Mexico. Among sole practitioners, India (30%) came in second after Canada (40%), followed by Mexico (20%), and China, Brazil, and Australia (each at 10%).

When the National Small Business Association asked which countries businesses exported to, China jumped to second, from eighth place in 2010, following Canada, which was in first place both years.

Among PCPS members who were not offering international services but planned to do so within the next five years, the largest overall average percentage (37%) thought they would be most likely to serve subsidiaries of international companies located in the United States. (This was true among all firm sizes except sole practitioners, who believed that U.S. citizens living outside the country were their best prospects, and small firms, for which the two prospects tied for first place.) Twenty-seven percent overall expected to work with U.S. citizens working outside the country, and 25% anticipated working with multinationals based here.

 

STEPS TO BOOST YOUR INTERNATIONAL COMPETENCY

Practitioners can enhance their competencies in the services that are most in demand and promote their expertise in multiple ways. Here are some of them:

Find out which clients are interested—or already involved. Fifty-two percent of companies in the NSBA survey reported their export volume had risen during the last five years, and 29% of those saw increases of more than 10%. How many of your clients are doing business internationally? If you’re not sure, a client survey using online tools such as surveymonkey.com and zoomerang.com can help you understand which ones are in the international marketplace or have plans to get involved. If you know that some top clients are doing business internationally, try arranging a meeting or lunch to find out more about their involvement and how you can help.

Understand client challenges and concerns. Whether you survey clients or meet them in person, make sure your questions elicit information about their current or planned overseas dealings, the countries involved, the compliance issues they face, and their greatest challenges. For example, in the NSBA survey, the top barriers to exporting cited included a lack of knowledge about exporting and how to get started (46%), worries about payment (26%), and costliness (20%).

Narrow your focus. It’s important to spotlight the international opportunities that fit best with your existing clients, capabilities, and capacity. The next step is to boost your competencies in those service areas. In the PCPS study, 72% cited developing the required expertise as the greatest challenge to providing international services. Forty-three percent noted that complying with international regulations was a challenge. These are challenges but also great opportunities for firms to build a strong niche by offering a broader range of international consulting services such as:

  • Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations.
  • Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation.
  • Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.
  • Foreign Investment in Real Property Tax Act (FIRPTA) withholding exemptions.
  • Pre-immigration planning for income and estate tax.
  • Certification of tax residency.
  • Estate planning for cross-border families.
  • IFRS financial statements.
  • Local statutory compliance.
  • Offshore voluntary compliance program.
  • Consultation on choice of entity or business structure.
  • Formation of interest charge domestic international sales corporation (IC-DISC).
  • Maximization of treaty benefits.
  • Foreign corporation nexus issues.
  • Transfer pricing.
  • Internal audit and risk services.


Reconsider your marketing approach and your potential audience. Thirty-seven percent of the respondents in the PCPS survey faced challenges in marketing to new or current clients. Your marketing approach is critical to grabbing the attention of international prospects or identifying existing clients that need advisory services. These clients include, but are not limited to:

  • Individual shareholders of foreign corporations.
  • Resident and nonresident aliens. 
  • U.S. startups with foreign subsidiaries.
  • Foreign companies or multinationals owned by a U.S. citizen.
  • U.S. trusts and estates with nonresident aliens as beneficiaries.
  • U.S. citizens with investments in foreign entities.
  • Nongovernmental organizations located outside the United States.
  • Partnerships or LLCs with foreign partners or foreign operations or services.
  • Domestic entities seeking to expand internationally or entering into foreign business ventures.
  • International investors living in the United States.
  • Foreign investors in U.S. assets.


PCPS Survey Methodology

The survey was emailed to about 7,000 PCPS member firms in the fourth quarter of 2013, and 251 responded. Small firms (sole practitioners and firms with fewer than 11 CPAs) and midsize firms (11 to 75 CPAs) each made up 37% of the respondents. Large firms (more than 75 CPAs) contributed 26% of the responses.

Yasmine El-Ramly ( yelramly@aicpa.org ) is a senior technical manager with the AICPA Firm Services & Global Alliances team.

To comment on this article or to suggest an idea for another article, contact Sabine Vollmer, senior editor, at svollmer@aicpa.org or 919-402-2304.

AICPA RESOURCES

JofA articles


Publications

  • Management of an Accounting Practice Handbook (#090407, loose-leaf; and #MAP-XX, one-year online subscription)
  • Transfer Pricing Methods: An Applications Guide (#WI573604)
  • U.S. and International Accounting: Understanding the Differences (#091099)
  • U.S. Taxation of International Operations: Key Knowledge (#091102)


CPE self-study

  • IFRS Certificate Program (#159770, two-year online access)
  • International Taxation Fundamentals: An Overview for Businesses (#731899)


Conference

Women’s Global Leadership Summit, Oct. 23–24, Washington

For more information or to make a purchase or register, go to cpa2biz.com or call the Institute at 888-777-7077.

Websites

Practice Growth & Client Service

PCPS International Services Center

The Private Companies Practice Section (PCPS) International Services Center provides practical information, guidance, and tools to help CPA firms achieve their goal of obtaining and retaining clients that have international service needs and aspirations. PCPS members can sign in to the International Services Center at tinyurl.com/p6qkxcj.

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