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The 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.

This 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.

The 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.

The 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.

This 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.

Outsourcing of accounting increasingly attracts research interest, but research concerning the impact of the benefits of outsourcing on firm capabilities and performance across firms remains limited. This paper aims to reveal the unobservable latent classes of firms that outsource their accounting functions by testing a research model concerning the topic.

The authors build on accounting outsourcing research and adapt a research model from the literature on business services outsourcing. The authors analyze the data from 261 small and medium-sized enterprises in Europe using finite mixture structural equation modeling (FMSEM) and additional methods.

The authors reveal three latent classes with different research models. Thriving outsourcers (N = 103) have a positive attitude toward accounting outsourcing and associate competitive capabilities with mediating the relationship from outsourcing benefits to firm performance. Annoyed outsourcers (N = 143) are dissatisfied with their accounting service provider and only associate outsourcing benefits with competitive capabilities. Convenient outsourcers (N = 15) feel comfortable with their current accounting service provider and associate outsourcing benefits with neither capabilities nor with firm performance.

The study initiates the discussion about the unobservable heterogeneity among accounting outsourcers. The study introduces the use of the FMSEM method in accounting outsourcing research.

The study offers novel insights concerning accounting outsourcers and proposes original explanations for their outsourcing decisions that would help both the outsourcers and accounting service providers.

The study might be the first to categorize accounting outsourcers using FMSEM.

This paper examines the relationship between accounting outsourcing and audit lag. Accounting outsourcing may reduce misstatement risk, reducing the amount of audit effort necessary and thereby decrease audit lag. Alternatively, outsourcing may increase the amount of coordination necessary between the auditor, client management and the outside accounting service provider and thereby increase audit lag.

The accounting outsourcing/audit lag relationship is examined among closed-end mutual funds. These funds often outsource their accounting functions and disclose the names and services provided by any company providing services to the fund. These disclosures permit a consistent measurement of whether the fund outsources their accounting functions or performs them in-house.

This paper finds a positive relationship between accounting outsourcing and audit lag; outsourcing funds have audit lags that are two to three days longer than those not outsourcing their accounting. The results are robust to different specifications, controls for the distinctive characteristics of closed-end funds and consideration of endogeneity.

Closed-end funds could consider the increased time necessary to complete the audit when deciding whether to outsource their accounting functions.

By identifying a unique setting in which outsourcing data can be consistently obtained and analyzed (i.e. closed-end funds), this is the first study to empirically evaluate the relationship between accounting outsourcing and audit lag.

Firms in Malaysia are in an enviable position in view of Malaysia's standing as a leading outsourcing hub in the region. Despite that, little is known about the accounting outsourcing practices, risks and control in Malaysia. This paper aims to explore the practices, decisions, processes and perception of risks and control in accounting outsourcing.

This paper is written based on survey data which were collected using a questionnaire. The questionnaires were directed to the head of the accounts and finance department of each company. A total of 51 companies participated in this study and approximately 47.1 percent of the respondents are involved in accounting outsourcing.

Findings show that the most common outsourcing activities are financial reporting and auditing while the main reasons to outsource are quality service, core competencies and scale economies. The decision to outsource accounting services is related to the type of industry and expertise in the firms. Most of the firms outsource their preparation of account and audit work as well as tax for better quality services. Firms rely more on formal contracts and concerns about confidentiality and security of accounting data.

Because of the limited number of responses, the findings may not be generalized to the overall population. Nevertheless, they can be used as background information for subsequent research in accounting outsourcing activities. Future research may consider the use of in‐depth case studies for understanding challenges in accounting outsourcing particularly in making decisions, managing processes and mitigating risks.

While it can be regarded as exploratory, this study makes an attempt to uncover the risks and control issues in accounting outsourcing. The findings will contribute to the body of knowledge in accounting outsourcing and enhance the understanding of the current accounting outsourcing practices in Malaysia.

The purpose of this paper is to provide understanding on the process of accounting outsourcing turnback from the client's perspective. The aim is to understand the issues faced by clients during turnback process, and provide recommendations to resolve them.

This study adopts a qualitative interpretive case study approach. Data were collected based on documentation, archival records, direct observation, and interviews to allow for triangulation.

This study provides empirical evidence of accounting outsourcing turnback process. Some of the issues faced by clients include lack of management support, limited financial and human resources, and uncooperative vendors.

Theoretically, this study extends Elliot's model by providing empirical evidence on process, identifying issues, and discussing recommendations on accounting outsourcing turnback. The limitation is the use of a single case study of a small company in Malaysia.

Practically, this study enhances understanding on accounting outsourcing turnback process and issues. The recommendations provided can serve as guidelines for clients who are considering outsourcing turnback as a strategic move.

There has been limited research in the area of accounting outsourcing focusing on turnback process. This study contributes to the field of accounting outsourcing by describing an accounting turnback process and issues faced by clients. The study recommends communication, financial support, top management support, back‐up exit plan, and vendor management throughout the turnback period. Finally, gradual reduction of accounting outsourced works rather than immediate termination is favored to reduce the risk in accounting outsourcing turnback.

This paper aims to improve understanding of how management control systems (MCS) are influenced by local contexts in outsourcing relationships, drawing on a multi‐layer analysis of embeddedness.

Data were gathered through a field study of 15 Egyptian firms that outsourced various forms of accounting services to third party suppliers.

The findings indicate that managers make their control choices based on the nature of their “embedded relationships” with suppliers. The embeddedness analysis demonstrates the influence of context on MCS implementation.

There is a paucity of studies focussing on how context affects control in outsourcing relationships. The paper provides a detailed framework and a rich empirically‐based explanation of the findings.

The findings have implications for the practice of accounting outsourcing and provide a conceptual framework of relevance to management practice.

A conceptual framework for understanding embeddedness is presented, which is illustrated with empirical evidence from multiple case analyses to illustrate how the implementation of MCS is influenced by context.

Discusses the treatment of outsourcing in company accounts. In particular, it considers the application of several accounting standards that may be relevant to the presentation of outsourcing agreements in the financial statements. The way in which these principles are implemented in the relevant financial statements, with respect to outsourcing between 1991 and 1997, is the main focus of the paper. In practice, accountants, in the majority of the cases, consider outsourcing contracts as immaterial contracts and, generally, they do not include any note of the outsourcing contracts in the financial statements. This implies that accountants (auditors) consider each outsourcing contract as an individual contract without taking into consideration its aggregate effects. Finally, the degree to which FRS 12 raises issues with respect to the outsourcing agreements is considered in this paper and their presentation in accounts is considered.

This paper aims to explore controls within an inter-organisational relationship involving outsourced management accounting services from the contractor’s perspective.

Qualitative data from within the relationship are analysed in a legitimacy-theory framework, illustrating how controls within the relationship are intended to build the contractor’s legitimacy and what kinds of implications the controls have in relation to conflicts between interests inherent in the relationship.

The legitimacy perspective clarifies that while controls are aimed at ensuring efficiency for the client, they may also provide symbolic displays of the appropriateness of the contractor’s actions both at an inter-organisational level for the client and at an individual level for the contractor’s employees. While the contractor intends to build legitimacy with the client by demonstrating utility in the form of efficiency, the process also gives the client influence and allows the disposition in terms of shared values to be demonstrated. However, this process has some negative consequences for the contractor’s employees as it is insufficient for serving the boundary-spanning employees’ interests connected with the nature of their work. Hence, the same controls need to yield benefits and fair outcomes for employees. The controls simultaneously foster interconnections that contribute to permanence and formalise the outsourcing of complex services, thereby rendering such processes comprehensible and transferable to other settings, which can be seen to serve the contractor’s continuity interests.

The paper contributes to academic research by illustrating how controls within inter-organisational relationships not only steer boundary-spanners’ work to conform to a client’s needs but may also help to build legitimacy via symbolic properties in the presence of conflicting interests at both an inter-organisational and individual level. It specifically highlights the important role of boundary-spanners lower in the organisational structure, who both affect and are influenced by the intentions to build legitimacy with the client.

Finance and accounting (FA) offshore outsourcing is a growing trend involving a relocation of business processes to Asia but only few studies focus on understanding the issues that underlie the relocation of FA services. This paper aims to provide understanding of transaction costs economics (TCE) issues in FA offshore outsourcing using a case study of the Malaysia outsourcing industry which is growing and experiencing significant change.

This study uses a qualitative case study approach. Interviews cover several foreign firms, which are based in Malaysia and involved in FA offshore outsourcing services worldwide. Interviews also include related regulatory bodies in Malaysia.

Using TCE and management control theoretical framework, findings indicate issues and challenges faced by the firms and the need for contract management skills to mitigate the issues.

This study is limited to a broad discussion of FA offshore outsourcing, TCE and contract management but it could be a basis for future studies on specific issues of managing attrition in FA offshore outsourcing. This study contributes to prior works in TCE and FA offshore outsourcing by establishing controls to minimise costs at contact, contract and control stage. Specifically, this study emphasises contract management such as negotiating contract and using long‐term contractual arrangement.

This study not only identifies TCE issues in offshore FA outsourcing, but also provides suggestions for minimising transaction costs. For example, firms should consider the type of transaction costs involved and plan for appropriate contract management to mitigate the costs.

There is no study yet that discusses in‐depth the issues of TCE in FA offshore outsourcing especially in Malaysia and the need for contract management in mitigating such issues.

The purpose of this study is to develop a research agenda on internal controls for offshored accounting processes. It further develops a linkage between internal controls of offshored accounting processes and auditing of the organization. Offshoring of accounting processes has become a common business practice, pursued by firms to reduce costs and focus on core competencies. However, our understanding about internal controls of these offshored processes is limited.

Grounded in theory that is supported by prior literature and interviews with practitioners, this paper attempts to develop a research agenda on internal controls for offshored accounting processes.

The main findings of our study suggest that while offshoring saves costs and allows the clients to focus on their core competencies, it also poses risks to the clients’ organizations. To mitigate these risks and comply with the regulatory requirements of the countries where the clients are located, clients and their offshore vendors need to effectively establish adequate internal controls for offshored business processes. Clients should seek those vendors who have appropriate processes in place and are willing to provide Service Organization Control (SOC) reports (or at least are capable of getting a SOC report in the near future). Moreover, clients should avoid offshoring the processes that would exist in defective internal control systems. Similarly, vendors should avoid undertaking those processes for which they are incapable of maintaining efficient internal controls.

Our study has implications for academicians as well as practitioners on understanding the determinants and consequences of internal control for offshored processes.

While internal controls for offshored accounting process and related regulatory changes have been increasingly important topics, little research has been devoted to explore their implications on accounting and auditing literature. We attempt to bridge this gap by synthesizing prior research on internal controls and auditing, and further developing a set of research questions for academic research. Our hope is to spur a new area of research that has not been explored before.