International Outsourcing as a Management Accountant’s Role Essay (Article)

Introduction

The use of international outsourcing is primarily intended to forward knowledge processing assignments to international partners/agencies, in order to attain sustainable cost and efficiency advantages. Besides the marketing advantages, such outsourcing entails, it is also possible to effect cost savings and reduction in workload of the outsourcing due to use of the international outsourcing techniques. The competitive advantages of international outsourcing could be seen in terms of quicker and speedier responding to market changes, resource planning and allocations, budgetary controls and more efficient and resourceful utilization of human assets. Thinking strategically,

“Irrespective of the size of a company, the ability to be able to manage the internal flow or trend of expenses and revenue is key to success.” Eseyin Kehinde: MAC in SAP Business One.

The need for international outsourcing may also occur due to shortage of skilled and specialized professionals in the host country, thereby leading to the need for meeting these shortages, by the use of specialists’ knowledge and talents from other countries.

Mierau, Alexander: 2007: Strategic importance of Knowledge Process Outsourcing.

Besides budgetary constraints and need for efficient outsourcing, this also results in competitive advantages in terms of better output and skill utilization in the countries in which such international outsourcing is conducted.

Role of the Management Accountant in international outsourcing

The Institute of Chartered Accountants of England and Wales has defined management accounting as any form of accounting which enables a business to be conducted more efficiently can be regarded as management accounting. Any service rendered by the accounting department of a business which increases the efficiency can be regarded as Management Accounting. Thus any service rendered by the accouting department of a business which goes on to increase the income generating capacity of a business enterprise, is known as operational efficiency of management accouting.

“The battle for financial statement integrity and reliability depends on balancing the pressures of multiple stakeholders, including management, regulators, investors and the public interest. We present the guidance and tools to make audit committee best practices actionable.” The American Institute of Certified Public Accountants (2006)

In the year 1987, the International Federation of Accountants has issued a very detailed and illustrative definition of Management Accountant. According to the IFA, Management Accountancy, Management Accounting is the process of:

1. Identification and Measurement: The recognition and valuation of business transactions or other economic events that have occurred or may occur in the future :
2. Accumulation: the disciplined and consistent approval to recording and classifying appropriate business transactions and the economic events.
3. Analysis: the determination of the reasons for and the relationships of the reported activities with other economic events and situations.
4. Preparation and interpretations: the meaningful co-ordination of accounting and or the planning of data to satisfy the need for use of the information prescribed in a logical format and if appropriate, the inclusion of the conclusions, drawn from the data.

Therefore, it could be reasonably said, that the rules of the management accounting principles and precepts, in the business building role of management accounting, and in the context of international outsourcing, could envisage the following aspects:

(Advancing the profession 1997): Institute of Management Accountants :

1. Providing Accounting information: This is based on the accounting information provided by the outsourcer to the various outsourced companies in specified destinations of the world. The generation of the management accounting data to be used for outsourcing is basically derived from the accouting department. These raw data needs to be processed and refined before being used for outsourcing purposes.
2. The cause and effect theories also come into play in the case of international outsourcing of accouting information. Companies make losses or profits, depending upon many factors, like costs, incomes, use of assets, control of costs, etc. It is necessary for the management accountant to not only record profits or losses, but also, analyze how and why, such profits or losses have been established. Through this method, it is possible to maximize the incidence of profits, and also, minimize the occurrence of losses.
3. The use of accounting tools that are known as financial planning tools, standard costing and marginal costing tools, budgetary controls and formulation of budgets and application of standard costing methods and techniques for maximum results, and “the core management competencies include accounting knowledge, business analysis, solution development, planning and communication.” (Management Training & Development : Management Accounting Course Objectives.
4. Management accounting helps in taking important decisions since it would be based on important decisions, and through the use of management accouting philosophies, it would be possible to render the maximum outsourcing services, both in terms of cost savings and enhancement of operations efficiencies.
5. In the context of international outsourcing, it is necessary for management accounting, to lay emphasis on the formulation of actions programmes, and its implementation, in order to get the maximum output from the outsourcing procedures. As has been earlier mentioned, the main objectives of outsourcing are to attain efficiencies in work outputs while reducing costs to the minimum. In the context of international outsourcing, it is seen that it also makes the best utilization of manpower and intellectual resource mobilization by making it focus more on strategic and important goals of the company, instead of it being frittered away in not very significant ways and means.
6. Outsourcing is an excellent method of downloading urgent work pertaining to the organization to the team of specialists, thereby the top management and covenanted officers are free to purse critical planning and managerial decision making functions; it also helps in planning, organization and controlling the work output and costs more effectively, since it is less process, and more result oriented functioning.

The tools and techniques that are used by the management accountant could be said to be as follows:

1. Financial policy and accounting: Every company need to take strategic decisions regarding the sources of raising funds. The funds can either be internally generated, or externally sourced. Again, there is a choice of the type of capital to be used, either equity or preferential capital. Although preferential capital could be of different types, their uses would be subject to the discretion of the Board of directors of the company.
2. Tax Planning : The various tax implications of the outsourcing procedures need to be looked into, including the best tax planning methods to be adopted, considering the overall budgets for taxes and duties of the Company.
3. Analysis of the financial statements: Classifications of the data has to be presented in such ways that would serve useful purposes to the management. Outsourcing provides the tool for using external sources for managerial decision making, and making the optimum use of own staff and personnel, for critical and important, though not urgent work, of the company. This way, it is ensures that the maximum productivity of the employees are maintained and the market efficiencies of outside outsourcing are also gained. The principle gains of outsourcing would be in terms of time, efficiencies and costs, all of which stand to be beneficial to the Company’s operations and future profitability.
4. Historical costing methods which could be used in the outsourcing, in terms of comparisons of the actual costs with the predetermined, or budgeted costs, and the reasons for the differences being analysed. By constantly comparing the budgeted costs with the actuals, the variances are analysed and determined. In future, necessary safeguards are implemented in order to ensure that costs agree, as much as possible with budgeted ones, in order to achieve the desired levels of profitability. “It also needs to consider aspects of cost behavior, cost management systems, and activity-based costing.” (Amazon.com :Introduction to Management Accounting : Ch 1-14 (13^th Edition : Editorial Review : Book Description :
5. Marginal Costing concerns itself with the aspects of costs incurred for increased level of activities or production. Under Marginal costing there are basically three types of costs, fixed, variable and semi-variable. Fixed costs tend to remain fixed over a period of time, variable costs vary with change in unit of output and semi-variable costs change over levels of activities, over a period of time. In the context of outsourcing costing, the desired levels of activites, most profitable for the company could be determined, and also, whether certain outsourcing medias need to be non-operationalised due to losses, also the profit comparisons between different outsourcing firms could be compared and contrasted, using marginal costing principles and techniques.
6. Decision Accounting: This plays a determinant part in the outsourcing of goods and services since it is now possibly to base strategic decision regarding outsourcing by using decision accounting. In this connection, it is seen that the top management of companies need to critically evaluate the aspects of outsourcing on an international basis, and make decisions based on the substantiation of facts and figures derived from the different outsourcing
7. Another aspect of outsourcing accounting deals with the control accouting wherein different systems have control devices, in the form of internal checks, internal audits and control mechanisms which help to control the various functioning of outsourcing management accounting functions in the best and most efficient methods.
8. Last, but not least, the management Information systems should concern itself with the recording and classification of data and also the feedbacks received from the outsourcing partners and agencies situate in different parts of the globe.

Conclusion

Thus it is seen that application of the principles and practices of a well documented Management Accouting plan is essential for competing in the international business arena and it is crucial for international outsourcing.Therefore, it is imperative that the accouting departments of outsourcing companies gear themselves for meeting the challenges and growth that avenues that could emanate from the strategic and purposeful use of international outsourcing practices.

Cited Works

Eseyin Kehinde Eseyin : MAC in SAP Business One. Web.

Alexander Mierau, 2007: Strategic importance of Knowledge Process Outsourcing. Web.

Amazon.com :Introduction to Management Accounting : Ch 1-14 (13^th Edition : Editorial Review : Book Description. Web.

Management Training & Development : Management Accounting Course Objectives. Web.

Advancing the profession (1997): Institute of Management Accountants. Web.

The American Institute of Certified Public Accountants (2006). Web.