Management control in accounting outsourcing services

Abstract

PurposeThe purpose of this paper is to provide evidence of accounting outsourcing practices in Malaysia and the management control strategies undertaken by these practising firms to mitigate inherent risks.Design /methodology/approachThis study employs survey methodology using structured questionnaires and case studies using interviews. A total of 51 companies responded to the questionnaires and two companies participated in the interview.FindingsThe survey data revealed that the primary reason for engaging in accounting outsourcing was to gain quality accounting service from the experts. With regard to management control strategies, it was shown that respondents place high emphasis of behavior, output and social controls. Further investigation using case studies involving a vendor and client companies reveal that the control mechanisms involved were stated in the outsourcing contract, namely the use of Key Performance Indicators (KPIs) and penalties. Informal controls were also used in both cases to assist in solving conflicts and dissatisfaction among vendors and clients.Research limitations/implicationsThe identification the control strategies in the accounting outsourcing process is useful for companies to manage the inherent risks in outsourcing relationships. The knowledge on the control practices by firms involved in accounting outsourcing provides additional assurance to potentials interested in seeking accounting services in this country.Originality/valueThis paper is driven by the lack of empirical evidence of accounting outsourcing practices in Malaysia and paucity of research into the role of management control in an outsourcing relationship. Despite the growth of the outsourcing industry in Malaysia, little has been done to understand the contribution of a professional service sector such as the accounting services to this industry.