nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2006‒11‒12
four papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Sourcing of Accounting: Evidence from Belgian SMEs By P. EVERAERT; G. SARENS; J. ROMMEL
  2. Using Option Theory and Fundamentals to Assessing Default Risk of Listed Firms By Papanastasopoulos, George
  3. Das Übergangsmodell der Einfachsteuer: Eine Effiziente Unternehmensbesteuerung? By Siemers, Lars-H. R.; Zöller, Daniel
  4. Outsourcing of Accounting Tasks in SMEs: An extended TCE Model By P. EVERAERT; G. SARENS; J. ROMMEL

    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.
    Keywords: outsourcing, accounting, SME, Belgium
    Date: 2006–08
  2. By: Papanastasopoulos, George
    Abstract: In this paper, we use option based measures of financial performance that utilize market information in a binary probit regression to examine their informational context and properties as distress indicators and to estimate default probabilities for listed firms. Then, we enrich them with fundamentals that utilize accounting information. The results suggest that by adding accounting information from financial statements to market information from equity prices we can improve both in sample fitting and out of sample predictability of defaults. Therefore, option theory does not generate sufficient statistics of the actual default frequency. Our main conclusion is that while market information can be extremely valuable, it is most useful when coupled with accounting information in assessing default risk of listed firms.
    Keywords: option theory; fundamentals; default risk
    JEL: G33 G32 M41
    Date: 2005–10
  3. By: Siemers, Lars-H. R.; Zöller, Daniel
    Abstract: We investigate the neutrality features of an ACE tax reform proposal suggested for the company tax reform in Germany. As a pure ACE tax system is not feasible in practice, certain elements have been changed in the proposal: the traditional income tax of non-corporations remains progressive; there is a flat tax rate for corporations, but there is also a tax levied on distributed profits. Similar to S-corporations in the USA, both non-corporations and corporations (if feasible) have the option to be either taxed at the personal level of the owners within the income tax or at the company level within the profit tax (so far corporate tax). In both cases, the companies have a claim on a operating expenditure for equity cost (ACE). To analyze the proposal we extend the neoclassical model by allowing for financial assets of companies. The proposal causes that investors distinguish two rates of discounting. Therefore, as we want to determine the optimal level of investment endogenously, we cannot maximize the market value of the company. The problem can be solved by maximizing the end value of the investments. We show that the proposed tax system guarantees financial, investment, legal form, and depreciation neutrality. Intertemporal or growth neutrality, however, is only generated financing investments by retaining profits.
    Keywords: tax reform; efficiency analysis; investment models
    JEL: H25 H21
    Date: 2006–11
    Abstract: This study explores why small and medium-sized companies (SMEs) engage in outsourcing of accounting services. We expand the transaction cost economics model by adding the variable resource deficit from resource-based theory, while controlling for personal characteristics of the SME executive (age, education), organizational structure, firm maturity and ownership structure. We find that resource deficit, asset specificity and frequency are the most significant drivers of outsourcing intensity with respect to accounting. Furthermore, the educational background of the CEO seems to play an important role, as well as the presence of a separate CFO function within the firm.
    Keywords: outsourcing, accounting, SME, transaction-cost theory, resource-based theory
    Date: 2006–09

This nep-acc issue is ©2006 by Alexander Harin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.