A Finance and Accounting Outsourcing (FAO) Framework

Throughout the world, the use of finance and accounting outsourcing (FAO) by small, medium, and large enterprises is rising.

The number of “multiscope” FAO contracts (those that include two or more core finance and accounting processes and a total contract value north of $1 million) increased by nearly 60 percent from 2005 to 2007, according to AMR Research. The research firm also reports that multiscope FAO partnerships are extending beyond transactional accounting processes, such as accounts payable, and starting to include financial reporting and financial planning/business intelligence processes with greater frequency.

Most CFOs and finance executives can count on having to weigh the pros and cons of outsourcing; many will play key roles in managing outsourcing relationships with external providers. The Management Accounting Guideline (published jointly by the Society of Management Accountants of Canada, the American Institute of Certified Public Accountants, and The Chartered Institute of Management Accountants), from which this article is adapted, provides guidance on managing FAO opportunities, challenges, and risks.

This guidance — which targets CFOs, finance and accounting managers, and others responsible for selecting, implementing, and managing FAO relationships — centers on what might be done at each of the following three stages of the FAO life cycle to create and manage a successful FAO initiative.

I. Making the Outsourcing Decision

Before outsourcing a process or a set of processes, finance executives should conduct four different — but frequently overlapping — evaluations to ensure a sound outsourcing decision (whether positive or negative) that aligns with corporate strategy, objectives, capabilities, and plans:

• Identifying the company-specific strategic drivers for the outsourcing decision is essential to keep everyone on the same page throughout the process.

• A thorough evaluation of the full range of options includes consideration of shared services arrangements, as well as all potential “sourcing” and “shoring” possibilities.

• Assessing the internal capabilities of each sourcing option must include an honest evaluation of systems and controls as well as the skills necessary to transfer and effectively manage the outsourced process or processes. And,

• Determining the scope and logic is an essential element of building and finalizing the business case for an FAO decision.