Outsourced vs. In-House Lease Accounting: Which Is Better?
Last Updated on February 9, 2023 by Morgan Beard
The lease accounting changes are here! In-house lease accounting vs. outsourced accounting is a topic for orgs to navigate. The recent changes to FASB ASC 842 lease accounting standards are creating more work for finance teams. In fact, one survey of finance leaders showed more than half (55%) find complying with these new standards to be more complicated than they expected.
In response, some are looking to outsource. While others are looking to bolster their in-house lease accounting capabilities. Both options have pros and cons. The new accounting requirements pose new hurdles for balancing financial statements.
When it comes to outsourced accounting services, companies can offload their lease accounting requirements (or any other aspects of accounting) to a third party with the time and expertise to complete the work. Compared to hiring additional accountants, outsourcing can be more accessible and more economical.
It can also create unintended obstacles. Because outsourced accountants work at a distance, clients may wait longer to get answers, and those answers could lack nuance and context. There can also be issues caused by personnel changes or a false sense that outsourced accountants are infallible.
The pros and cons of in-house lease accounting are the inverse. In-house accountants are always around to answer questions, and they know the company finances better than anyone. That being said, qualified accountants are in short supply, and recruiting the right talent can be expensive. In-house lease accounting typically looks more appealing, but if it was easy, outsourcing wouldn’t exist.
At the same time establishing best practices for you team is paramount. Measuring your right-of-use asset, and lease liability, for journal entries requires methodical processes. Transitioning away from off-balance-sheet accounting to straight-line-basis accounting under ASC 842 and/or IFRS 16 is easier with software.
The Role of Technology in FASB ASC 842 Compliance
Regardless of whether you choose to go with outsourced accounting services or keep things in-house, you’ll want to have lease accounting software at your disposal. It can help in-house accountants work more efficiently and effectively. It can also help outsourced accountants provide a higher level of service.
In either case, lease accounting software keeps the new rules from creating an overwhelming amount of work and helps keep compliance in check. Here’s how:
1. Expedite new workloads. Lease accounting, before and after ASC 842, is a data-intensive process. Data silos force in-house or outsourced accountants to spend more time hunting down data, but technology can break these silos down and create a central repository of information relevant to lease accounting.
2. Reduce (or eliminate) costly errors. That same pool of information can also eliminate the errors caused by disconnected, inconsistent datasets. When everyone involved with lease accounting — inside or outside the office — works from the same set of information, misunderstandings and redundancies (compliance killers) become far less common.
3. Leverage superior insights. Integrated information leads to better insights. By combining everything — transaction management, lease administration, and lease accounting — under one umbrella, lease accounting software gives any accountant a big-picture perspective backed by in-depth detail. Errors and omissions no longer compromise understanding.
Final Considerations for In-House Lease Accounting
Before deciding how to proceed with lease accounting, evaluate your existing processes. Are they defined enough to make in-house lease accounting feasible, or would it make more sense to outsource these processes to experts?
Data security also deserves scrutiny. Can your company keep data safe and compliant? Likewise, will handing that data to a third party make it more or less secure? Noncompliance with new lease accounting standards would be bad — but a data breach would be much worse.
Finally, consider how lease accounting software factors into everything. Is your third-party partner willing and able to interface with the software you use? Conversely, does your in-house lease accounting team have the tech tools it needs — along with training to fully utilize those tools? Technology can be the single biggest asset to compliance or the biggest obstacle.
The right choice is different for everyone, and the pros and cons of outsourcing deserve careful consideration at any company. What isn’t up for debate, however, is the need for a smart and sustainable approach to lease accounting compliance. The right software is half of the equation; the right accountants are the other.
Check out our Lease Accounting Resource Hub for additional guidance.
Want to learn more about how to prepare for ASC 842 compliance and other commercial real estate and proptech topics? Tune into our podcast, “Fully Occupied.” Or see Occupier in action by scheduling a demo today.