Lease audit procedures are necessary for an efficient, successful audit. At their core, lease audit procedures ensure your organization has controlled processes in place to support its financial reports.
Having such procedures enable auditors to get their job done quickly due to reliable, clearly stated and followed controls. The more organized and prepared you are, the more likely you will avoid running into issues within your audit.
Not only do lease audit procedures better prepare you for an upcoming audit, but lease audit procedures can also provide additional business benefits through supporting optimization of your lease portfolio. Below, we dive into how lease audit procedures can help your business.
Anticipate Audit Needs
Lease audits focus on providing an independent evaluation of asset control and risk. This evaluation is designed to drive continuous improvement to an organization’s processes and system.
The Journal of Accountancy outlines a number of challenges for auditors when approaching the leases section of the audit. Gaining a broader understanding of these challenges is an excellent first step in preparing for lease audit procedures under ASC 842.
When preparing for an audit, the goal for accounting and finance professionals is to ensure their books are in order for when the auditors come around. A significant component of this preparation is completeness assertion, which translates to ensuring all transactions that were supposed to be recorded have been recognized in the financial statements.
Nearly all (99%) senior finance and accounting professionals have concerns about misreporting company lease information.
Avoid Costly Mistakes
The absence of lease audit procedures can present a challenge when leased asset information is not readily available or in a central database.
To comply with the new lease accounting standards, all lease arrangements and amendments need to be identified, reviewed and abstracted. Financial statements are impacted with lease-related assets, receivables, liabilities and deferred inflows of resources coming on to the statement of net position.
Essentially, preparing for an audit means looking at an organization’s leased asset portfolio and ensuring all relevant stakeholders are assessed and addressed.
New lease accounting standards, like ASC 842, are likely to get more attention than usual from the auditors. Delays or missteps can put your business’ audit at risk of costly mistakes, such as increased audit fees, fines or damage to company and personal reputation. But having everything ready for the auditors puts the liability on them to get their job done accurately and efficiently.
Ensure Accurate Compliance
As mentioned earlier, the key to successfully completing lease audits is being prepared and organized.
The end goal of lease audit procedures is to ultimately eliminate the need to worry by ensuring procedures are identifiable and support compliance under the new lease accounting standards.
By having a centralized database and lease accounting system in place, finance and accounting professionals will not only be able to get the information they need quickly and easily, they will also subconsciously adopt time-tested lease audit procedures as a science.