Issues for finance leases, Auditing

Issues for Finance Leases

For the leases such have been categorize as finance leases, a model uses to be checked for the following issues:

(i) Check technique used to split capital and interest

(ii) Check the technique is appropriately applied to lease payments

(iii) Check reduction which is based on the shorter of the lease term and the needful life of the asset to the lessee.

In addition 'normal' audit tests verification of the asset as for many non current assets. Whether the lease has been classified as an operating lease, then a check is required of the manner in which the rentals have been charged to the income statement.  A check should be made on the physical existence also of the asset whether at the time of the audit the lease is still in existence.

Finally regard should be made to the possibility of assets being held within leases also being shown in normal noncurrent assets in the balance sheet.  This is principally relevant to operating leases whether the existence of a physical asset at the balance sheet date have to be required to support the inclusion of the asset in the non current asset account.

Posted Date: 1/25/2013 1:54:03 AM | Location : United States

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