Given that the economic recovery is still somewhat tenuous, there is a need for management of small and medium-sized enterprises (SMEs) to work with a lean cost structure, improve utilisation of their internal resources and work closely with their business associates and professional advisers to achieve growth and business excellence.

Reliable and timely generation of financial information and ensuring compliance with regulatory requirements are essential and expected from multinational corporations. But achieving these would be a challenge for the SMEs.
With the constant changes to the complex financial reporting framework and regulatory requirements - coupled with the increased sophistication of today's investors, regulators, stakeholders and other users of the financial statements - it becomes essential for SMEs to recruit a team of competent professionals to meet these expectations.  

As recruiting the right talents and ensuring optimum utilisation of this pool of internal resources becomes an increasingly difficult task which requires constant monitoring, outsourcing - traditionally viewed as not cost-effective - is now a viable option. Constraints of SMEs

Some constraints SMEs face are a lack of time, resources and expertise. It is also not uncommon for SMEs to be unaware of funding opportunities, grants and subsidies from the government and other tax incentive schemes. The opportunity costs arising from the lack of awareness were recently magnified when the government introduced various incentive schemes to spur the growth of the SME business community.

Whilst the financial and management reporting functions are known to be the responsibilities of the management of the SMEs, other tasks such as preparation of financial statements and filing of these financial statements in XBRL format are often perceived to be the responsibilities of the external auditors.

 With the recent changes in the Financial Reporting Standards (FRSs), many in-house finance personnel at the SMEs lack the capability, training and knowledge to ensure that their financial statements are prepared in full compliance of the framework. These personnel tend to make changes to the financial statements only upon receiving advice from the auditors nearer to the filing deadline. This is inefficient and causes unnecessary frustration.

Types of outsourcing business functions

In view of the increasingly complex FRS, and the need to optimise the efficiency and effectiveness of the financial reporting functions, outsourcing tasks which are traditionally undertaken by the in-house finance team has become more relevant and urgent. Accounting functions which could be outsourced are:

Preparation of financial statements in accordance with the FRS, including transfer of these financial information into Extensible Business Reporting Language (XBRL) format;

Review to ensure appropriateness and alignment of group accounting policies and consistency of application of these policies by all entities within the group;

Provision of training for the finance personnel on recent updates and implications of changes in the FRS and requirements of key regulators;

Review for improvement in the system of internal controls, corporate governance or financial reporting framework of the SMEs before an initial public offering exercise;

Review for compliance with the tax, regulatory and other requirements, especially for SMEs upon listing on the Singapore Exchange, for which they are required to fulfil their post-offering reporting requirements.

SMEs which will benefit most:

SMEs at the following stages are likely to reap substantial benefits from outsourcing their business functions:

Those that require an assessment of their readiness for an IPO

Those with limited expertise or rapid staff turnover, as the latter means that training the internal team to keep up with the changes in regulatory requirements will be a burden;

Those with limited and stretched internal resources, comprising finance staff who are required to operate multiple tasks and when it is not cost effective to recruit full-time professionals to monitor compliance with the FRS or regulatory requirements;

For those SMEs with limited contacts and network, engaging external professional advisers could present opportunities in the areas of tax planning and other incentive schemes.

Large international accounting firms usually have the depth of financial reporting experience across multiple industries and financial reporting and regulatory regimes, which could help the SMEs in the above functions. Furthermore, these accounting firms also have the global network and a wide spectrum of services which the SMEs could benefit from. While cost may be a key consideration to the SMEs, the benefits in outsourcing the business functions far outweigh the costs, and these in turn add immeasurable value to the SMEs' stakeholders.

Source: asiaonebusiness