| Abstract: |
Purpose: Firstly, this paper investigates the sourcing strategy of small and
medium sized companies (SMEs) in terms of accounting tasks. Secondly, this
paper also attempts to find motivations for the sourcing strategy of
accounting. Thirdly, this paper investigates whether the sourcing strategy is
related to firm size, industry and familiarity with outsourcing of other
support tasks. The following accounting tasks are considered in this study:
(1) entry of invoices and financial transactions, (2) preparation of interim
profit and loss account (e.g., monthly profit calculation), (3) period-end
accounting (e.g., depreciations, interest accruals, stock changes, loans,
accruals and deferred income), (4) preparation of financial statements
(Balance Sheet, Profit & Loss Account, Notes), (5) Belgian VAT compliance and
(6) Belgian corporate income tax compliance. <br><br>
Design/Methodology/Approach: A survey was developed and sent out to 1 200
randomly selected SMEs in Belgium. We used the criteria of the European
Commission, defining SMEs as companies employing between 10 and 250 employees.
From this group, we excluded financial and governmental companies. The survey
was developed after in-depth interviews with experts in the field (accounting
service providers) and revised three times based on the comments of six CEOs,
not included in the final sample. The results of this study are based upon
answers from 126 respondents. <br><br>Findings: To get an idea of the degree
of outsourcing in each of the six accounting tasks, we used the framework of
Lacity and Willcocks (1998) and made a distinction among total insourcing
(less than 20 per cent of the task is done by the external accountant),
selective outsourcing (between 20 per cent and 80 per cent of the task is
performed by the external accountant) and total outsourcing (more than 80 per
cent of the task is performed by the external accountant). The results show
that SMEs prefer to a large extent a total insourcing strategy for regularly
recurring tasks like the entry of the invoices and the VAT compliance. For
less frequent tasks, like the period-end accounting and the preparation of the
financial statements, a selective outsourcing strategy is regularly used,
where the workload is more or less equally divided between the SME and the
external accountant. A total outsourcing strategy is mainly used for corporate
income tax compliance (63 per cent of the respondents). Contrary to most prior
studies that identified cost reductions as the principal driver to choose for
outsourcing, our study within Belgian SMEs indicated that cost is not the main
concern when deciding whether or not to outsource accounting tasks. SMEs
especially select a total outsourcing strategy because of the external
expertise and high confidence in the external accountant. SMEs especially
select a total insourcing strategy because they want the accounting
information at hand and prefer a direct follow-up of the financial situation.
SMEs especially select for a selective outsourcing strategy for the expertise
and specialized knowhow of the external accountant. Finally, we found a
relationship between sourcing strategy and firm size. Larger SMEs prefer to
keep their accounting tasks internally. The smaller the SME, the more it
relies on an external accountant by choosing for a selective or total
outsourcing strategy. Industry did not have an influence. SMEs that are
familiar with outsourcing of other support tasks seem to prefer a total
insourcing strategy for their accounting tasks. <br><br>Research
limitations/implications: Most outsourcing research to date has concentrated
either on outsourcing or insourcing. Future research on outsourcing should
focus on the degree of outsourcing, because the results show that many SMEs
are using a selective outsourcing strategy. Furthermore, the results also show
that cost reduction is not a reason to outsource accounting, so future
research might investigate the difference in reasons to (or not to) outsource,
depending on the business function. Finally, there is no link with performance
in this study. Future research might explore the conditions in which total
insourcing, selective or total outsourcing (of accounting or other functions)
might be appropriate. <br><br> Practical implications: Service providers (in
this study limited to external accountants) need to stress their “expertise”
to attract SMEs to (selectively) outsource accounting activities. The most
important reason why SMEs do not outsource is that the accounting information
would no longer be readily available in the company and there would be fewer
possibilities for direct follow-up. External accountants have to take into
account these arguments when further improving their services for SMEs, for
instance by offering web-based applications. <br><br>Originality/Value of the
paper: We examined outsourcing of accounting in more detail than previous
studies in this area by specifying six different accounting tasks and
including the degree of outsourcing for each of these accounting tasks. This
made it possible to investigate the different sourcing strategies (total
insourcing, selective outsourcing, total outsourcing) and to link this with
reasons to outsource and company characteristics. |