IDEAS home Printed from https://ideas.repec.org/p/rug/rugwps/06-403.html
   My bibliography  Save this paper

Sourcing of Accounting: Evidence from Belgian SMEs

Author

Listed:
  • 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. 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.

Suggested Citation

  • P. Everaert & G. Sarens & J. Rommel, 2006. "Sourcing of Accounting: Evidence from Belgian SMEs," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/403, Ghent University, Faculty of Economics and Business Administration.
  • Handle: RePEc:rug:rugwps:06/403
    as

    Download full text from publisher

    File URL: http://wps-feb.ugent.be/Papers/wp_06_403.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kakabadse, Andrew & Kakabadse, Nada, 2002. "Trends in Outsourcing:: Contrasting USA and Europe," European Management Journal, Elsevier, vol. 20(2), pages 189-198, April.
    2. Vining, Aidan & Globerman, steven, 1999. "A conceptual framework for understanding the outsourcing decision," European Management Journal, Elsevier, vol. 17(6), pages 645-654, December.
    3. Quélin, Bertrand & Duhamel, François, 2003. "Bringing Together Strategic Outsourcing and Corporate Strategy:: Outsourcing Motives and Risks," European Management Journal, Elsevier, vol. 21(5), pages 647-661, October.
    4. Abraham, Katharine G & Taylor, Susan K, 1996. "Firms' Use of Outside Contractors: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 394-424, July.
    5. J. B. Arbaugh, 2003. "Outsourcing Intensity, Strategy, And Growth In Entrepreneurial Firms," Journal of Enterprising Culture (JEC), World Scientific Publishing Co. Pte. Ltd., vol. 11(02), pages 89-110.
    6. William M. Dugger, 1996. "The Mechanisms of Governance," Journal of Economic Issues, Taylor & Francis Journals, vol. 30(4), pages 1212-1216, December.
    7. Michael J. Leiblein & Douglas J. Miller, 2003. "An empirical examination of transaction‐ and firm‐level influences on the vertical boundaries of the firm," Strategic Management Journal, Wiley Blackwell, vol. 24(9), pages 839-859, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ezekiel Jide Fayomi & Ziska Fields & Kayode Kingsley Arogundade & Olusegun Matthew Awotunde & Christianah Olubunmi Ijamusan & Temitope Teniola Onileowo, 2019. "Evaluation of Owners’ Characteristics and Succession Practice among Small and Medium Size Manufacturing Enterprises in Ekiti State, Nigeria," Journal of Economics and Behavioral Studies, AMH International, vol. 11(3), pages 84-96.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Roger Strange, 2011. "The outsourcing of primary activities: theoretical analysis and propositions," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(2), pages 249-269, May.
    2. Steven Globerman & Aidan Vining, 2004. "The Outsourcing Decision: A Strategic Framework," International Trade 0404007, University Library of Munich, Germany.
    3. P. Everaert & G. Sarens & J. Rommel, 2006. "Outsourcing of Accounting Tasks in SMEs: An extended TCE Model," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/409, Ghent University, Faculty of Economics and Business Administration.
    4. Alena Klapalová, 2012. "Reverse logistics and 3PL in the Czech Republic," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 60(7), pages 163-170.
    5. Matthias Buerker & Gaetano Alfredo Minerva, 2013. "Civic Capital and the Vertical Integration of Service Provision: Evidence from Italy," ERSA conference papers ersa13p1209, European Regional Science Association.
    6. Hätönen, Jussi, 2009. "Making the locational choice: A case approach to the development of a theory of offshore outsourcing and internationalization," Journal of International Management, Elsevier, vol. 15(1), pages 61-76, March.
    7. Christian Ruzzier & Ricard Gil, 2015. "’Make or Buy’ as Competitive Strategy: Evidence from the Spanish Local TV Industry," Working Papers 119, Universidad de San Andres, Departamento de Economia, revised Feb 2015.
    8. Tomás F. Espino-Rodríguez & Pei Chun Lai & Tom Baum, 2012. "Risks and Benefits of Outsourcing Hotel Operations: A Comparison between Scotland and Taiwan," Tourism Economics, , vol. 18(1), pages 95-120, February.
    9. Ricard Gil & Christian A. Ruzzier, 2018. "The Impact of Competition on “Make-or-Buy” Decisions: Evidence from the Spanish Local TV Industry," Management Science, INFORMS, vol. 64(3), pages 1121-1135, March.
    10. Gerwin, Donald, 2006. "Buyer-vendor relations for components: The extreme example of custom integrated circuits," Research Policy, Elsevier, vol. 35(5), pages 673-690, June.
    11. Tate, Wendy L. & Ellram, Lisa M. & Bals, Lydia & Hartmann, Evi, 2009. "Offshore outsourcing of services: An evolutionary perspective," International Journal of Production Economics, Elsevier, vol. 120(2), pages 512-524, August.
    12. Suhaiza Zailani & Mohd Rizaimy Shaharudin & Khairul Razmi & Mohammad Iranmanesh, 2017. "Influential factors and performance of logistics outsourcing practices: an evidence of malaysian companies," Review of Managerial Science, Springer, vol. 11(1), pages 53-93, January.
    13. Mahoney, Joseph & Asher, Cheryl Carleton & Mahoney, James, 2004. "Towards a Property Rights Foundation for a Stakeholder Theory of the Firm," Working Papers 04-0116, University of Illinois at Urbana-Champaign, College of Business.
    14. Wang, Li Ming & Liu, Li Wen & Wang, Yong Jie, 2007. "Capacity decisions and supply price games under flexibility of backward integration," International Journal of Production Economics, Elsevier, vol. 110(1-2), pages 85-96, October.
    15. Tsai, Ming-Chih & Lai, Kee-hung & Lloyd, Alison E. & Lin, Hung-Ju, 2012. "The dark side of logistics outsourcing – Unraveling the potential risks leading to failed relationships," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(1), pages 178-189.
    16. Freytag, Per V. & Clarke, Ann H. & Evald, Majbritt R., 2012. "Reconsidering outsourcing solutions," European Management Journal, Elsevier, vol. 30(2), pages 99-110.
    17. Mol, Michael J., 2005. "Does being R&D intensive still discourage outsourcing?: Evidence from Dutch manufacturing," Research Policy, Elsevier, vol. 34(4), pages 571-582, May.
    18. Lajili, Kaouthar & Mahoney, Joseph T., 2005. "Revisiting Agency and Transaction Costs Theory Predictions on Vertical Financial Ownership and Contracting: Electronic Integration as an Organizational Form Choice," Working Papers 05-0106, University of Illinois at Urbana-Champaign, College of Business.
    19. Chanson, Guillaume & Quélin, Bertrand V., 2013. "Decentralization and contracting out: A new pattern for internal and external boundaries of the firm," European Management Journal, Elsevier, vol. 31(6), pages 602-612.
    20. Gunasekaran, Angappa & Irani, Zahir & Choy, King-Lun & Filippi, Lionel & Papadopoulos, Thanos, 2015. "Performance measures and metrics in outsourcing decisions: A review for research and applications," International Journal of Production Economics, Elsevier, vol. 161(C), pages 153-166.

    More about this item

    Keywords

    outsourcing; accounting; SME; Belgium;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rug:rugwps:06/403. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nathalie Verhaeghe (email available below). General contact details of provider: https://edirc.repec.org/data/ferugbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.