CRITICAL FACTORS IN OUTSOURCING OF ACCOUNTING FUNCTIONS IN MALAYSIAN SMALL MEDIUM-SIZED ENTERPRISES (SMEs)

The challenges that business face in sustaining competitive advantage in the corporate world have become a major concern. Businesses are adopting cutting-edge technologies and best practices to cope with rapid, global changes. Various business functions are being reengineered for this purpose. Accounting functions play an important role in helping businesses to maintain competitive advantage. However, some small and medium-sized enterprises (SMEs) face problems handling fundamental accounting functions. This is predominantly because of their lack of expertise; accounting functions require not only knowledge of generally accepted accounting rules or tax regulations but also the expertise needed to apply the rules in a given business environment (Everaert, Sarens and Rommel, 2006). This paper offers some insight on the outsourcing of accounting functions as there is paucity of data in this area in the context of Malaysia. Essentially, it presents empirical evidence regarding Malaysian SMEs' accounting outsourcing practices. A survey of SMEs was conducted to identify the overall outsourcing landscape as it relates to accounting and third-party organisations. The factors that contribute to the decision to outsource accounting functions are analysed. The study reveals a significant relationship between outsourcing accounting functions and two contributing factors, risks and operation management.