Lease Accounting Audit Completeness
Fifteen Ways to Assert that You Have Accounted for the Complete Lease Population
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Learn different strategies for validating completeness of the lease population:
- Vendor invoices, contracts and records
- Stakeholder surveys and attestations
- Systems of record for IT, fleet, real estate
- Controls on purchases, invoices and renewals
Identify change events that may be overlooked in normal business processes:
- Mergers and acquisitions
- Sale-Leaseback transactions
- ERP and Systems changes
What Will External Auditors Focus on for Lease Accounting?
What items will external auditors be focused on after the implementation deadline for lease accounting? There has been little guidance published by the big four firms yet. However, one topic that is raised by auditors at almost every lease accounting conference is the importance of completeness. Specifically, how do you know that you have identified a complete population of all the leases across your enterprise?
It should not be surprising that auditors will be questioning completeness as it is a well-known area of weakness. The systems, processes, and controls for leasing are relatively immature compared to other financial processes that impact the balance sheet. In fact, many companies do not even have an accurate inventory of what is
leased across the business due to the decentralized approach that has been taken to managing the portfolio.
With operating leases moving onto the balance sheet, auditors will want to ensure that the right-of-use assets and lease liabilities reported in your financial statements accurately represent your company’s obligations. While omitting a $500 printer lease may not be material, overlooking a $5M real estate contract embedded in an outsourcing agreement could be.