## Learning Outcomes

After reading this article, you will be able to explain the roles and structures of the accounting function within modern organisations, distinguish between shared services and outsourcing, and evaluate the use of service level agreements (SLAs) in managing service provision. You will gain the skills to compare approaches, identify their implications for efficiency and control, and apply ACCA-relevant concepts in practical scenarios.

## ACCA Business and Technology (BT) Syllabus

For ACCA Business and Technology (BT), you are required to understand how the accounting function operates within organisations, and the structural alternatives available to deliver accounting services efficiently while maintaining control and quality. You should focus your revision on:

- The role of the accounting function in business operations, policy implementation, and performance monitoring.
- The principles and application of shared services and outsourcing in the provision of accounting, finance, and related business functions.
- The purpose and content of service level agreements, and their use in managing performance and quality in contracted arrangements.
- The potential benefits, risks, and limitations of shared services and outsourcing models.

## Test Your Knowledge

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, look more closely at that area during your revision._

1. What is the main distinction between an internal shared services centre and an outsourced accounting service?
2. List two possible benefits that a business might achieve through the implementation of a shared services model for finance operations.
3. True or false? A service level agreement only specifies the price of an outsourced accounting service.
4. Give one potential risk associated with outsourcing the payroll function to a third-party provider.

## Introduction

The accounting function is essential for recording transactions, producing financial information, ensuring regulatory compliance, and supporting strategic and operational decisions. As organisations grow, they often reconsider how to structure accounting services for efficiency, control, and cost management.

Two common approaches—shared services and outsourcing—can help streamline processes and reduce duplication, but require careful management and clear service expectations, often formalised using service level agreements.

> **Key Term: shared services**
> A model in which common support functions (such as accounting, payroll, or IT) are centralised into a single unit serving multiple divisions or departments within an organisation, rather than being duplicated in each business area.
> **Key Term: outsourcing**
> The process by which an organisation contracts out certain business functions or processes—previously performed internally—to an external provider, typically under a formal agreement.
> **Key Term: service level agreement (SLA)**
> A formal contract between a service provider (internal or external) and the recipient, defining the expected performance standards, responsibilities, reporting, and remedies for non-compliance in the provision of services.

### The Accounting Function: Scope and Structure

The accounting function undertakes key activities, including recording financial transactions, processing payroll, preparing statutory financial statements, managing tax compliance, and supporting management with planning and control information. How these services are delivered—through traditional departmental structures, shared services arrangements or outsourcing—affects cost, control, and service quality.

![Accounting service model selection based on data sensitivity, control requirements, specialist capability, capacity variability, scale, and standardisation needs.](https://static.pastpaperhero.com/images/acca-bt-role-and-structure-of-the-accounting-function-shared-services-outsourcing-and-service-levels_00.png)

_Accounting function delivery options are mapped to decision criteria leading to shared services, outsourcing, or a traditional departmental structure._

### Traditional Departmental Structure

Historically, each business unit might have its own finance and accounting staff, potentially leading to duplicated effort, inconsistent processes, and limited standardisation.

### Shared Services Centre (SSC)

A shared services centre consolidates functional activities (e.g., accounts payable, receivables, payroll) into one central team servicing the entire organisation. This centre operates like an internal service provider, often charging its “customers” (the various business units) for the services delivered.

Benefits of shared services:

- Reduced duplication and lower costs through economies of scale.
- Improved process consistency and standardisation.
- Enhanced service quality and stronger internal controls.
- Easier adoption of best practice and new technology.

Potential drawbacks:

- Loss of local knowledge or responsiveness.
- Transition challenges and potential resistance from business units.
- Risk of perceived “central bureaucracy” if not well managed.

### Worked Example 1.1

> **Question:**
> A group of retail stores previously operated separate payroll teams in each regional office. Management decides to create a central payroll shared service centre. What changes should staff in the individual stores expect, and what benefits might the company achieve?
>
> **Answer:**
> Store staff will now submit payroll changes (e.g., new joiners, leavers, timesheets) to the shared services centre, rather than processing them locally. The company is likely to benefit from lower payroll processing costs, more accurate and timely payroll runs, and consistent application of payroll policies.

### Outsourcing Finance and Accounting Functions

Outsourcing involves appointing an external service provider to run all, or part, of the accounting function—such as accounts payable processing, payroll, or even the full finance operation.

Advantages:

- Access to specialist knowledge and advanced technology.
- Ability to vary service capacity with business needs.
- Potential cost savings, especially if the provider operates at scale.
- Management focus shifted to core business activities.

Disadvantages:

- Reduced direct control over daily operations.
- Risks over confidentiality and security of sensitive financial data.
- Potential quality or responsiveness issues if the provider underperforms.
- Loss of in-house knowledge and potential employee morale issues.

### Worked Example 1.2

> **Question:**
> A manufacturing company outsources its accounts payable processing to a specialist firm. Six months later, invoices are being paid late, causing supplier complaints. What action should the company take under its agreement?
>
> **Answer:**
> The company should review the service level agreement to check agreed payment timelines and performance standards, then raise the issue formally with the provider. If performance falls short, escalation procedures or contractual remedies (such as penalties or service credits) may be available.

### Comparison: Shared Services vs Outsourcing

| **Aspect**   | **Shared Services**            | **Outsourcing**                             |
| ------------ | ------------------------------ | ------------------------------------------- |
| **Provider** | Internal team (within company) | External third-party organisation           |
| **Control**  | Retained within company        | Relinquished to provider                    |
| **Focus**    | Standardisation and efficiency | Cost, specialist knowledge, and flexibility |
| **Risks**    | Loss of local responsiveness   | Service quality, data security              |
| **Contract** | Often internal SLA             | Formal external SLA                         |

### Service Level Agreements (SLAs)

Whether functions are provided via shared services or outsourcing, it is essential to define performance standards and responsibilities clearly. Service level agreements are formal documents specifying:

- The specific activities covered (e.g., payroll processing, invoice payment).
- Quality and timeliness measures (e.g., payroll accuracy, payment turnaround times).
- Reporting obligations and performance metrics.
- The process for escalation, dispute resolution, and consequences of failing to meet agreed standards (e.g., service credits, termination clauses).
- Confidentiality, data protection, and security provisions.

SLAs create accountability—helping the customer monitor the service provider's performance and ensuring transparent expectations.

### Worked Example 1.3

> **Question:**
> An outsourced accounting agreement includes an SLA requiring monthly management reports to be delivered within five working days after month-end, with 100% accuracy. Last month, the provider delivered the report ten days late and with errors. What recourse is available?
>
> **Answer:**
> The client can refer to the SLA for remedies, which might include financial penalties ("service credits"), corrective action plans, or—if breaches persist—potential termination of the contract.
>
> **Exam Warning:**
> Failure to specify quality and reporting requirements in the SLA can leave the organisation unable to hold the provider accountable for poor service. Always check what is and is not covered by the agreement.

### Selecting the Right Approach

The decision between shared services, outsourcing, or maintaining separate finance teams depends on organisation size, strategy, regulatory requirements, cost considerations, and risk appetite. Hybrid models—retain control over sensitive or strategic functions (such as cash management) while outsourcing routine tasks—are also common.

Transition management, clear communication, and effective leadership are critical for success in both shared services and outsourcing projects.

> **Revision Tip:**
> For ACCA exam questions, focus on explaining both the benefits and risks of shared services and outsourcing, and always refer to the role of SLAs in protecting service quality and business interests.

## Key Point Checklist

_This article has covered the following key knowledge points:_

- Define shared services and outsourcing and explain their differences.
- Describe the benefits and limitations of shared services for the accounting function.
- Detail the risks, advantages, and disadvantages of outsourcing accounting activities.
- Explain the purpose and contents of a service level agreement (SLA).
- Illustrate the importance of SLAs for managing service quality in both shared services and outsourcing.
- Outline factors influencing the selection of accounting service delivery models.

## Key Terms and Concepts

- shared services
- outsourcing
- service level agreement (SLA)


Role and structure of the accounting function - Shared services outsourcing and service levels