1.

1 BACKGROUND OF THE STUDY

Whenever anyone ventures out to start any business, there are

three primary reasons, make profits, grow to a global level and give back

to society by way of employment & revenue by way of taxes and duties

(Steve Walker, 2008)

In all the above three reasons, a business is helped by accounting

to not only know where the business stands vis-à-vis the goals, but also

helps the business in taking measures to achieve the goals faster & in a

better way by making sure that all the transactions that the business is

entering into is recorded in a timely manner, ensuring that all such

transactions are grouped under the correct account heads and ensuring

that the profit & loss account and the balance sheet along with other

reports like the Cash Flow Statement, Funds Flow Statement, Debtors

Aging report are prepared in a timely manner & presented to the owner for

taking the right actions. (Steve Walker, 2008) The need for good

accounting information is not separable from an organization's purpose or

objectives (D. Victor, 2009)

Given the importance accounting has on business, it is a critical

decision to choose which accounting system to adopt is more appropriate,

beneficial and efficient for the business organization.

 The study would be analyzing the cost-benefit of adopting an

inhouse accounting system at NuComm International. NuComm

International was a Canadian-based provider of customer relationship

and call center services. It is officially now part of Transcom WorldWide

S.A. and operates as Transcom North America / Asia.

1.2 OBJECTIVES OF THE STUDY

General Objective:

To identify the cost-benefit of adopting an in-house accounting

system at NuComm International

Specific Objectives:

a.) To determine the direct and related costs of an out sourced accounting

service and an in-house accounting system at NuComm Intl.

b.) To identify the degree of satisfaction on in-house and outsourced

accounting.

c.) To make a relevant comparison of satisfaction per cost input between

in-house accounting and outsourced accounting system.

d.) To name the determinants of adopting an in-house accounting system

from an outsourced accounting service.

 e.) To identify the determining factors of maintaining an in-house

accounting system.

1.3 SIGNIFICANCE OF THE STUDY

Accounting Students

This study would be significant to fellow accounting students as it

would provide information about the distinction, pros and cons of two

different accounting services, furthermore it will provide insight and

background in general of their chosen profession and what’s currently and

really happening in practice.

Also, it may be a reference for future studies about in-house

accounting and outsourcing and may also provide insights about the

subject to enhance classroom discussions.

Researchers

This will also serve as a source of reliable 2nd hand information on

related researches particularly in in-house vs outsource topics and in

accounting in general as well.

 Information that the this study provides may help foster for more

researches about various accounting principles to contribute to the

betterment and development of the accounting profession.

Business Organizations

Rising prices and costs had burdened not only society but various

business organizations as well.

Findings of the study may help business organizations optimize

efficiency thru effective analysis of cost-benefit. The study may also be a

reference for related decision makings and help regulate costs for the

benefit of business organizations and their costumers.

1.4 THEORETICAL FRAMEWORK:

Cost–benefit analysis is widely used by entities such as the

government, businesses whether big or small and even individual

consumers. It is an analysis of the cost effectiveness of different

alternatives in order to see whether the benefits outweigh the costs. The

aim is to gauge the efficiency of an alternative in relative to the status quo

or another alternative. The costs and benefits of the impacts of an

alternative are evaluated in terms of willingness to pay for them (benefits)

or willingness to pay to avoid them (costs). Inputs are typically measured

in terms of opportunity costs - the value in their best alternative use. The
guiding principle is to list all areas affected by an alternative and place a

monetary value of the effect it has on the overall satisfaction of the

affected party as it would be valued by them (Ascott 2006).

The process involves monetary value of initial and ongoing

expenses vs. expected return. Constructing plausible measures of the

costs and benefits of specific actions is often very difficult. In practice,

analysts try to estimate costs and benefits either by using survey methods

or by drawing inferences from market behavior. For example, a product

manager may compare manufacturing and marketing expenses with

projected sales for a proposed product and decide to produce it only if he

expects the revenues to eventually recoup the costs (R.H. Frank 2000).

Cost–benefit analysis attempts to put all relevant costs and benefits

on a common temporal footing. A discount rate is chosen, which is then

used to compute all relevant future costs and benefits in present-value

terms. Most commonly, the discount rate used for present-value

calculations is an interest rate taken from financial markets (R.H. Frank

2000).

During cost–benefit analysis, values may also be assigned to less

tangible effects such as loss of reputation, delays, client dissatisfaction,

and even to good effects such as timeliness, good relationships, and long-

term enterprise strategy alignments. This is especially true when

businesses decide on their logistic strategies, the raw materials their going
 to use for their products or which law firm will handle their lawsuit.

Governments also use the technique, for instance to decide whether to

introduce business regulation, build a new road, or offer a new drug

through the state healthcare system. In this case, a value must be put on

human life or the environment. For example, the cost–benefit principle

says that we should install a guardrail on a dangerous stretch of mountain

road if the dollar cost of doing so is less than the implicit dollar value of the

injuries, deaths, and property damage thus prevented (R.H. Frank 2000)

1.5 CONCEPTUAL FRAMEWORK:

We will use the satisfaction of the company towards its accounting

policy, the costs and the benefits as our dependent variables in this study.

The accounting policies namely, inhouse accounting and outsourced

accounting will be our independent variables. Figure 1 will illustrate the

relationship of our stated variables

Figure 1

Dependent: Independent:

Benefits Inhouse
accounting
Satisfaction
Outsourced
Cost accounting
1.6SCOPE AND LIMITATION:

The study will determine the costs and benefits associated with

adopting an in house accounting department in a Business Process

Outsourcing company. The causes and effects of the change from

outsourcing accounting services to an in house accounting department will

be discussed and analyzed as well as the criteria in which the change was

based. This study will gather pertinent data through interview with internal

sources of the company.

The researchers limit themselves to Nucomm International

Company which is the subject of the study. The study is conducted during

school year 2010-2011.

1.7HYPOTHESIS
 Ho: If inhouse accounting is adopted there will be a decrease in the

level of satisfaction

Ha: If inhouse accounting is adopted there will be an increase in the

level of satisfaction

1.8 DEFINITION OF TERMS

In-house accounting is using hired employees to satisfy the company’s

accounting needs (Steve Walker, 2008)

Outsourced accounting is the contracting of BPO companies for their

accounting needs (Steve Walker, 2008)

Utility is the theoretical quantification of satisfaction for the use in

measurement. Used as utils (Wagner-Janssen, 1999)

Cost-benefit analysis is the process that involves weighing the total

expected costs against the total expected benefits of one or more actions

in order to choose the best or most profitable option. (R.H. Frank, 2000)

Quantitative information is a type of information that refers to accurately

measurable information such as cost, profit, income and expense (R.

Hussey, 1999)
 Qualitative information is a type of information that is not in a form of a

numerical value. An abstract data which cannot be reliably measured such

as satisfaction, timeliness and reliability (R. Hussey, 1999)

Turnover refers to the frequency of the occurrence of a repetitive event.

The number of times a report is given within a set timeframe. (Jasheen,

1999)

Premium an additional payment from the minimal requirement to gain an

increase in the quality of service received (Barron, 2007)

Differential Cost refers to the cost that differs from one option to another.

(R. Hussey, 1999)

BPO (business process outsourcing) is the act of giving a third-party the

responsibility of running what would otherwise be an internal system or

service. For instance, an insurance company might outsource their claims

processing program or a bank might outsource their loan processing

system. Other common examples of BPO are call centres and payroll

outsourcing. (Marios Alexandrou, 2010)

2.1 Review of Related Literature

Title: Outsourced Accounting in wholesale trading enterprises in

Binondo, Manila (submitted to the faculty of graduate school of UST by

Hilda Varez, Mar. 2007)

This study, made by Hilda Varez, was spurred by her growing

awareness of globalization. As said in the study, globalization called for a

new and innovative way to maximize efficiency in the way business

organizations tackle its undertakings. As pointed out, outsourcing is a

method found as a "powerful management strategy" in maximizing an

organization's resources. The outsourcing trend was believed to have

grown from just the delivery process to the key business processes such

as the accounting process and with its growth comes its popularity to

business organizations. The outsourcing of the accounting process

became a popular approach for business organizations such as theses

trading enterprises because of its promise of an efficient way to deal with

the business' accounting needs. The focus of the study is the impact of

outsourcing the accounting process on trading enterprises. This study

used the descriptive-survey method of research and the date collected

where analyzed and interpreted using descriptive statistics such as

frequency, rank, percentage, GWA and ANOVA. The result showed that

76% of the micro-scale enterprise is using outsourcing for its accounting

process while 69% of the small scale and 100% of the medium scale

adopts this trend. The findings can be interpreted as a landslide victory for

outsourcing having the vast majority adopting this trend and an emphatic

100% of the sample for the medium scale enterprises accepting this

practice. Furthermore, the results showed those who favored to outsource

this process ranked their want to focus on their businesses as their

primary reason to adopt this over the cost-efficiency promised by this

practice. This result is supported by an empirical data found during the

study that the fee charged by those who provide the accounting service

have and accelerated increase based on the size and activity of an

enterprise. As for Nucomm Int'l, though it is a BPO while this study is

concerned with trading businesses, the physics of the outsourcing trend

found in this study may still hold true.

Title: Lessons learned from outsourcing practice in a SME

(Northeast Decision Sciences Institute Proceedings by Mohammed H. A.

Tafti, Deb Sledgianowski, Jim Kierstead, March 2008)

This paper discusses lessons learned in a recent Enterprise

Resource Planning (ERP) outsourcing effort from a practitioner’s

perspective. The Paper presents an analysis of the SME outsourcing

practices and discusses a case study of a company’s experience

concerning its outsourcing efforts namely Kanebridge Corporation.

Outsourcing, as a major IT and business strategy, has become a

commonplace practice in recent years which was estimated to be

approximately 90% of all new SME businesses in the United States are

toward to increasing their use of outsourcing. Organizations generally

expect to reduce their overall IT costs, focus on their core competencies,

and gain superior technical resources when they outsource part or all of
their IT functions. Kanebridge Corporation, a distributor of industrial

fasteners, has been doing their IT software development in house for

30years when he outsourced SourceCode Inc. to make its custom ERP

system. Kanebridge’s outsourcing effort for its software development

project was a huge success as found out by this paper. Kanebridge’s

project was completed earlier than expected because of the fact

SourceCode staged the project in 2 teams, one in India and the other in

U.S., leveraging on the time difference. On a closer look made by the

paper, it showed a result of not only time-efficiency but also cost-per-time

efficiency because of the cost savings generated by staging the India

team. The results also showed an acquisition of an intangible asset which

came from the formation of an alliance between Kanebridge and

SourcCode. This intangible was highlighted on the lower IT cost incurred

by Kanebridge during the project due to the trust that bonded the two

which eliminated extra allocation of resources just for the management of

the risk that the other party will not keep their side of the agreement.

Although in Kanebridge’s case, outsourcing became a huge success there

were a lot of risks which are associated in outsourcing that are pointed out

by this paper, namely loss of expertise, hidden costs, inappropriate

contract, limitation of control and loss of privacy and security. In the case

of NuComm Int’l, it might probably be that the reason why NuComm

shifted back to the traditional in-housing was because it fell from the risk

inherent in outsourcing during its past endeavors.

Title: Outsourcing keeps firms Competitive

(“Accounting Today” of Thomson Media by David Wyle)

The advent of the internet ushered in a new stage for business.

This Milestone enabled firms to get work done faster and more accurately.

The internet paved the way for the virtual workplace where geographically

dispersed engagement teams can work together as a single unit allowing

firms to provide more flexible work arrangements and eliminating manual

tasks associated with assembling and maintaining paper files. With the

increasing use of this technology, professionals such as accountants can

collaborate across continents and grab one of the most significant

opportunities for accounting firms today. During the heavy tax season

other businesses are coming to the accounting firms all at the same time

to tackle their accounting needs. It is a phenomenon that produces heavy

demand for the accounting process namely the tax preparation and also a

phenomenon that can be grabbed as a golden opportunity for accounting

firms to rake in profits from their clients. The problem in this is that the

demand is so great accounting firms cannot deliver the work in a timely

manner and sometimes firms lose its CPAs which succumb into pressure

and stress resulting into more of a loss than the intended gain. Some

accounting firms, in response to this phenomenon, are hiring temporary

employees just to accommodate the demand but this solution will breed

new problems of its own like the cost of the training of the staff. Investing
on the temporary staff would not yield a good return because of the high

probability that these temporary staff would not return in the subsequent

years and if the management absorbed them to secure the good yield

from the training investment it would then produce slack for the rest of the

year after the tax season. Also the quality of work could not reliably be

assured and if it went wrong it could be disastrous for the firm. The

solution proposed by this article regarding the problem is to outsource

other professionals which are situated outside the country to temporarily

increase the man power of the firm. This article proposes that outsourcing

is a cost efficient solution to cover the needs of accounting firms as they

arises the article mentioned about the inefficiency of absorbing the

employees is due to the relatively low demand during the non-peak

season as compared to the tax season but if the demand is steady all year

round it would be efficient to absorb them theoretically speaking. In

relation to the present case with NuComm Int’l their demand for an

accounting service is relatively even all year round it might be efficient to

hire rather than to outsource employees although in this case the

accounting firms are outsourcing for their operations while in NuComm’s

case it is for their administration.

Title: Outsourcing security saves money (or maybe doing it in-house

does)
(“Security director’s report” of Institute of Management and Administration,

September 2006)

Contracting guards for the security needs of a business is not

confirmed whether it is a smart move although outsourcing is generally

regarded as a more cost-sensitive solution. This means that even if

outsourcing provide a lower cost to businesses in-housing for security

needs can still even out with the popular trend of outsourcing. Security

Directors Report (SDR) conducted a survey regarding the debate over the

cost-benefit efficiency between outsourcing and in-housing. The SDR

interviewed and surveyed a number of chief security officers and found

that for every two security executives who said they’ve cut costs by

outsourcing one says he or she had accomplished the same thing by

doing more in-house. One of the chief security officers who favored in-

housing pointed that even though outsourcing came in cheaper the value

of the guards do not meet the required quality set by the business

therefore in-housing the security is the only choice. And in addition, it is

about the security and it will be ironic if it will be subject to risks. Risks are

one of the factors why in-housing can compete with outsourcing in the

security arena. As found out, another executive switched from outsourcing

guards to in-housing them primarily because of a security failure from

using contracted guards. They were robbed and it was found out that it

was an inside job. Another pointed reason for the competitive edge of in-

housing is the value being given by the security executives to the trust
factor. But overall, outsourcing is still the common practice due to the cost

savings. One insurance company even reduced its expenses by $300,000

by outsourcing. Highlighted in this paper are the qualitative factors that

gives in-housing a shine that must be taken into recognition although the

cost benefit offered by outsourcing is still slightly ahead in this field it is still

not a unanimous choice to go for as for others are still valuing the benefits

offered by in-housing.

Title: Perception of the Selected BPO Companies in Ortigas Center

on the Implementation of its Business Continuity Plan

Mhia R. Espinosa (March 2010)

This study focuses on the perception of the selected BPO

companies on the implementation of business continuity plan with regards

to its process and how it helps the company achieve total quality

management, productivity, minimized cost, greater communication

compatibility and global competitiveness.

Researcher used qualitative research to analyze the efficacy of the

process of BCP as perceived by the respondent companies. Survey

questionnaire, interviews and other methods such as z-test were utilized

to analyze the data gathered

 Respondent A achieved high ratings both across the 5 phases of

BCP and 5 measures of efficacy this is due to the fact that employees at

all levels are well prepared on their role in the implementation of BCP.

Findings also show that implementation of the process of BCP of

respondent A helps the company achieve cost minimization because they

do not save money in terms of continuity plan what they do is look for

another supply that offer less but the quality of service is not

compromised.

Each variable have association with each other as reflected on the

p-value of less than .05 due to the 95% confidence level set

Results of this study relate to the readiness of BPO’s to adopt and

explore other alternatives for cost minimization. Although the focus of this

study is far from the objectives set for our study, findings still suggests

critical observations about BPO that has achieved cost minimization.

Title: Why Are Associations Migrating to Outsourced Accounting?

Associations Now, pp 20-21, Hassairi, G. (September 2008)

It has been an on-going trend on today’s global business

environment to go for innovative, more effective and more efficient

resource management. The convergence is toward outsourcing financial

operations. This article has noted that this trend can especially be seen in

the non-profit industry.

Non-profit organizations are now being subject to increasing

inspection and scrutiny of government regulations, in an industry largely

unprepared for the onslaught of accounting rules, more and more

association executives resort to outsourcing their financial operations.

Outsourcing allows the organization to concentrate on its core

business and leaving non-core functions to the hands of experts. The

article says that this promotes optimal resource allocation and appropriate

use of available funds. Outsourcing accounting functions provides access

to invaluable expertise that eases financial operations while ensuring

compliance with regulations. It can also be a cost cutting engagement

without impairing quality.

Key reasons and benefits why an organization should outsource

accounting functions were pointed out and are applicable not only to the

non-profit industry but also to the whole business environment. However

the decision whether to outsource or not must be an informed decision

keeping sight of business strategy and other economic benefits.

Title: Should You Outsource Accounting and Finance?

Journal of Corporate Accounting & Finance (Wiley), 17(6), 11-15

Anderson, J. & Vito, R. (2006)

Many companies feel that while financing and accounting functions

are critically important for a business they are still considered non-core

activities and outsourcing them would provide better reallocation of limited

internal resources like managerial time and investment dollars into areas

more directly related to profit making. It has been stated in this article that

a recent survey suggests that more often than monetary factors,

respondents cite “focus on core competencies,” “tap new expertise,” and

“improve efficiencies” as factors to outsource.

However, clearly it still remains that one of the biggest driving

factors for outsourcing accounting has been the significant cost savings

but the real magnitude of the cost savings achieved by outsourcing is a

matter of debate.

Initially, business executives have projected cost savings of up to

70% however a recent McKinsey Global Institute survey of 216 showed

that cost savings had just averaged at about 20%. A recent study has

shown that almost 50 percent of companies considering outsourcing

decide against it mainly because of the following reasons: concern about

loss of control over data, the importance of timely and accurate accounting

information for decision making and the fear of adding a new layer of

internal control risk. They justify that cost savings are just not enough for

the risk in giving up control over important operations.

 The article provides good arguments and information on both

decisions to outsource and not to outsource, which are very critical for the

objectives set for our study.

Title: Outsourced Accounting – How Different Is It from In-House

Accounting?

Walker S. (December 2008)

Having an in-house accountant has some major benefits mainly

because an in-house accountant is most likely from the same region as

the business and therefore understands the business and its environment

better. This can be a lot of help when the accountant has to give an in-

depth analysis about the conditions affecting the business. Furthermore

in-house staff tends to be more flexible and may be called on to extend a

helping hand on areas other than specified whenever there is a

requirement of the business.

Unlike an in-house accountant, an outsourced one is not under the

employment of the business and has a contractual relationship to provide

the business accounting services.

 Since an outsourcing accounting firm is professional service

provider, it would have a highly skilled experts at its disposal who can be

of immense help to a business as they can provide tremendous

accounting value. Unlike inhouse accountants, a business does not have

to bear with leaves since outsourced service provider will have someone

to back up when the one who would be working takes leave.

Both have their own advantages and disadvantages. The article

provides some insight about the differences of one from the other for

better decision on what system to adopt, an inhouse or an outsourced

one. As for the case of our study, it could be helpful in determining some

underlying reasons or certain considerations between choosing to in-

house instead of the other.

Title: Outsource or In-House-- Your Accounting Function

Thompson & McCarty (August 2006)

The decision that all business will have to eventually make is how

to handle their accounting needs. Good accounting is very critical for

business management and there are commonly 2 ways to do it: In-house

or outsourced.

While having it outsourced produces a big down side, that is the

feedback for your business is delayed for at least 30 days often longer, a
weakness that cannot be overcome, it still is a very practical choice small

businesses since your financial data are processed by trained accountants

it is done more efficiently and therefore costs less than hiring one. Also,

due to the expertise of the accounting firm, one gains various business

insights and advantages that they would not have if operating alone.

Obviously, at the point when a company has enough accounting

transactions to devote full time staff to the accounting function; the

employee issue is no longer true. It is at this point that it makes sense to

pull the accounting in-house.

However most of the outsource vs. inhouse decision are a lot more

complicated than that. Example is any on retail environment. Retailing

performance measurement is highly based on average ticket which

requires the retailers to implement a point of sale system for better

tracking of average ticket price. Having this done externally is cost

prohibitive and it is a lot easier to capture data at point of sale. Although

some of the accounting functions can still be outsourced the size of the

operation determines how much of this can be done efficiently.

Bottom line is that it is often necessary to blend in-house and

outsourced accounting services to get the accounting handled well. There

is no one size fits all solution for outsourcing vs in-house. It varies upon

the demands of the business type and its scale.

Title: TIPS IN CHOOSING THE BEST ACCOUNTING OUTSOURCING

(Outsourcing 100 Success Secrets: 100 Most Asked Questions: The

Missing IT, Business Process, Call Center, Hr -Outsourcing to India, China

and More Guide by Gerard Blokdijk, 2008, 176 pages)

Accounting outsourcing is among the most popular areas of

company outsourcing. More small and medium-sized businesses use this

because it is time consuming and difficult. In this way companies can

focus more on the important or core functions of the company. There are

several advantages in availing of accounting outsourcing. Aside from

relieving the company from tedious job of accounting and bookkeeping, it

can also save some operational costs such as office space and other

operational costs.

The outsourcing market is expected to grow more in the coming

years. Many companies are becoming aware of the potentials and

advantages inherent in outsourcing.

This is due to the experiences of many companies in outsourcing

which makes them more aware of the risks and potentials. Although there

are the disadvantages such as non-loyalty and other vested interests of

outsourcing companies, the advantages are far greater.

Outsourcing can also make companies concentrate more on the core

functions of the business, thereby making it more successful. Back

operations businesses maybe outsourced and managed by another

company, instead of including them among the core business areas.

Outsourcing can be used to develop internal staff. Outsourcing can

also be used as a tool to develop the internal employees. The internal

employees are important because they are aware of the interest of the

company and are more loyal, therefore a company must also think about

their development.

Due to outsourcing, internal employees have more time to pursue

development efforts for the company such as policy making. Secondly, the

consultants and experts from the outsourcing company can train the

internal staff. The advantages of outsourcing far outweigh the

disadvantages.

Title: Advantages and Disadvantages for Outsourcing the

Accounting Functions

(http://accounting-financial-tax.com/2010/07/advantages-and-

disadvantages-for-outsourcing-the-accounting-functions/)

July 12, 2010 by Putra

Is it possible to outsource the accounting function? The answer is

“YES”. The accounting function could be outsourced, though this is usually

limited to only a few tasks within the function. A Financial executive would
start thinking of outsourcing some of the accounting function when in

house accounting staffs do not function in efficient manner. Fraudulences

are usually the most reason. Lacking in technical skill, multi-national

accounting standard compliance coverage are the next reason. If those

are the case, YES, there are opportunities to outsource a wide array of

services in this area, if a controller or CFO is willing to work with multiple

suppliers to achieve this goal.

The cash management function can be outsourced. One reason is

that a company manually moves funds between accounts and manually

records this information, whereas a bank can automatically consolidate

the cash in various accounts and sweep it all into an interest-bearing

account without any manual interference at all. This allows one to reduce

the fixed cost of the in-house staff it uses to track the flow of cash through

its accounts in exchange for a per-transaction fee from the bank for

performing the same service. Also, since the bank can fully automate this

work, the company has a much lower risk of having any errors in moving

funds between accounts.

The only disadvantage is that the company is forced to use the

same bank for all of its accounts, which does not allow the company to

use the services of multiple banks and have them compete against one

another in offering the best prices to the company.

 A company has a supplier create financial statements for it when its

in-house accounting staff is not large or experienced enough to do so

correctly in a timely manner. This can be a good idea if the accounting firm

used is a large one, for its staff will have an excellent knowledge of all

reporting requirements needed for financial statements, especially for all

required footnotes.

A popular variation on this approach is to have an outside firm

verify the accuracy of the financial statements that were produced by the

in-house staff, especially if the company is a public one and its reports are

going to the Securities and Exchange Commission (SEC), which requires

a very detailed knowledge of the SEC’s reporting requirements. The

downside of this approach is that accounting firms usually charge high

rates for this service. Thus, one must decide if the improved level of

reporting is worth the additional cost.

Taxation can be outsourced when a company is not big enough to

support the fulltime services of a tax department of its own. This is

frequently split into two pieces, with state and federal taxation reporting

going to a supplier and local taxation being kept in house. The reason for

this split is that many taxation firms are experts at state and federal issues

because they have their own teams of experts who advise them on these

issues; however, they have little incentive to develop an expertise in

limited locals areas, such as enterprise development zones.

 The best reason for outsourcing the collections function is that the

supplier may pursue those customers who refuse to pay with greater

energy than would the in-house collections staff. Particular skill is required

in persuading companies to pay for old invoices, and good collection

companies employ people of this type.

The downside of using collection agencies is that they can be so

aggressive with customers that they will refuse to ever do business with

the company again; however, since the company had to refer the

customer’s account to the supplier anyway, the company may not want to

pursue further business relations. Also, a collections agency is typically

paid a large percentage of each bill collected, normally about one-third of

the total.

However, a company usually passes along a bill to the collection

supplier only at the point when it does not believe it can collect the bill

itself, so any collection, even if not for the full amount, is better than what

the company had before. Furthermore, many companies write off

accounts receivable that must be handed over to collection agencies, so

there is no expectation of ever collecting the funds. Also, a company can

sometimes work with collection agencies who are willing to be paid by the

hour rather than on a percentage basis.

Title: New Trends in Outsourcing of Accounting Services: More

Benefits for Clients at a Lower Price

(http://www.bme.eu.com/article/New-trends-in-outsourcing-of-accounting-

services-more-benefits-for-clients-at-a-lower-price/)

Accounting and finance are ones of the most vital back-office services.

They give the management information about the company and help

making proper business decisions.

In the very competitive economy of today their importance becomes

bigger and bigger. However using the information from the accounts and

controlling the costs of other divisions of the company we cannot forget

about the costs of the system itself.

Many people find outsourcing as a remedy against growing costs

and inefficiency of almost each business activity. In many cases it is truth.

But not always. Surprisingly it may not apply directly to the accounting

activity.

Let’s take a closer look on the advantages and disadvantages of

the internal accounting department and outsourced accounting.

The internal accounting department gives the management full

control on the system, including software, people and their time

involvement. It allows relatively easy improvement of the efficiency of

information processing by implementation of ERP systems. On the other

hand it means that the management must reserve certain office space for

the people, hire them, find replacements for the time of sickness and

holidays, arrange proper hardware and software etc. As a result the

accounting department requires as much attention as any other one, but in

opposite of for example production or R&D division, doesn’t generate any

money. Additionally some well paid specialists, like chief accountant or

finance director, may be not fully used, especially in smaller companies.

The remedy against the high costs of internal accounting

department seems to be outsourcing of the services. In general case it is

doubtlessly true. The company treating accounting and finance as their

main business activity will do everything that is necessary to make it

efficient. It refers in particular to some specialized services like finance

management, tax advisory, staff and payroll affairs. It is certainly the best

solution for the new companies. They may concentrate on business

development and leave the rest of affairs in the hands of professionals.

The affairs become more complicated when the company grows.

The management requirements are bigger, in particular with respect to the

reporting deadlines. It is very natural. When you drive a car slowly, you

have got more time to make decisions. When it goes fast, every second or

millisecond counts. The same is with the company. In the beginning the

management knows almost everything about the company. The time when
the report comes from the accounting department is rather not important,

because it only confirms what they already know.

With the growth of the company the situation changes. The reports

become major source of the information about the company. They must

be accessible faster, include more information and be accessible (fully or

partly) for more people. The traditional system of collecting documents

and sending them for processing to the external office becomes not

efficient. It is necessary to process them at the location of the company. It

is necessary to process them faster …

It is the moment when usually a decision about major changes is

made. On this level the company requires an integrated system allowing

processing each document only one time. The issued invoices should be

immediately booked, the payments made or received should be

immediately booked. The updated information about sales, stock, debtors,

and creditors should be available every day.

The first investment to be made by the company is the computer

software. It is important to analyze the needs and the plans of the

company very well as its purchase and implementation is very expensive,

both in money and time. The modules of the system will be operated by

many people at sales, production or warehouse and the outsourcing of the

accounting functions may still be a good idea. While choosing the system

it is worth asking for advise the accounting service provider, but it is

important to know their recommendation is based on the knowledge of

many systems, not only one they know and use.

With the time and farther development the benefits of full

outsourcing of the accounting activity become less visible (at least from

the financial point of view). The company has already got their own

system; the accountants hired exclusively for them cost the same or more.

It is the moment for the next change.

The experience of German tax advisers we cooperate with and

ours shows new trends in outsourcing of the accounting services.

The clients being under the pressure of keeping the costs at the low

level and needing access to the professional advisers very often decide to

change the formula of outsourcing of the accounting services. The new

formula is based on the most valuable elements of outsourcing and

internal accounting department.

The heart of the system is the computer software of the class

depending on the size of the company. Usually the companies being big

enough decide to buy one of ERP systems like EXACT, IFS, ORACLE,

SAP or any other that meets their needs the best or was chosen by the

headquarter in case of multinational companies. The software is operated

on daily basis by employees from various departments what allows almost

immediate access to the vital data like: sales (total, by product, by region,

by client,), stock, work in progress etc.

The accountants hired directly take care of all the basic functions,

like cost accounting, bank and petty cash operations, collection of account

receivable etc. They work for the company, but under supervision of the

professional adviser. He is available daily to help in solving recent

problems, if any, and to review periodically the accounts, prepare financial

statements and tax returns. “The adviser” doesn’t need to mean one

person. It may be a team of specialists in various disciplines.

It is not said that the time of classical outsourcing is over. Still for

many companies it will be a good solution, especially if the management

needs to concentrate on their development.

However many companies constantly search for solutions that

allow them to be more efficient. It is likely that the solution described

above will become popular in many of them.

COST BENEFIT ANALYSIS OF ADOPTING AN INHOUSE ACCOUNTING AT

NU COMM INTERNATIONAL

An Undergraduate Thesis

Presented to the Faculty of AMV College of Accountancy

University of Santo Tomas

In Partial Fulfillment of the Requirements for the Degree of

Bachelor of Science Major in Accountancy

By

2010