EconPapers    
Economics at your fingertips  
 

Sourcing of Accounting: Evidence from Belgian SMEs

P. Everaert (), G. Sarens () and Jan Rommel ()

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

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. 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. 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. 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. 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. 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 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2006-08
New Economics Papers: this item is included in nep-acc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://wps-feb.ugent.be/Papers/wp_06_403.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:06/403

Access Statistics for this paper

More papers in Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration Contact information at EDIRC.
Bibliographic data for series maintained by Nathalie Verhaeghe ().

 
Page updated 2024-02-21
Handle: RePEc:rug:rugwps:06/403