Page 312 - CA Inter Audit PARAM

CA Ravi Taori
Answer Auditor's Procedures:- In respect of leasing transaction entered into by the leasing company, the
following procedures may be adopted by the auditor:

(1) The object clause of leasing company to see that the goods like capital goods, consumer durables
etc. in respect of which the company can undertake such activities. Further, to ensure that whether
company can undertake financing activities or not.

(2) Whether there exists a procedure to ascertain the credit analysis of lessee like lessee’s ability to
meet the commitment under lease, past credit record, capital strength, availability of collateral security,
etc.

(3) The lease agreement should be examined and the following points may be noted:

(i) the description of the lessor, the lessee, the equipment and the location where the equipment is to
be installed. (The stipulation that the equipment shall not be removed from the described location
except for repairs. For the sake of identification, the lessor may also require plates or markings to be
attached to the equipment).

(ii) the amount of tenure of lease, dates of payment, late charges, deposits or advances etc. should be
noted.
(iii) whether the equipment shall be returned to the lessor on termination of the agreement and the
cost shall be borne by the lessee.

(iv) whether the agreement prohibits the lessee from assigning the subletting the equipment and
authorises the lessor to do so.

(4) Examine the lease proposal form submitted by the lessee requesting the lessor to provide him the
equipment on lease.

(5) Ensure that the invoice is retained safely as the lease is a long-term contract.

(6) Examine the acceptance letter obtained from the lessee indicating that the equipment has been
received in order and is acceptable to the lessee.

(7) See the Board resolution authorising a particular director to execute the lease agreement has been
passed by the lessee.

(8) See that the copies of the insurance policies have been obtained by the lessor for his records.

QNO Types of Lease- Old Course – (M19E)
ADE.87 Bhaskar CNO - ADE.260
Define the different types of lease agreements as per Accounting Standard/Ind-AS.
➢ AS-19/ Ind-AS 17 defines that lease arrangements could be of 2 types i.e.
• Finance Lease:
An arrangement with the following attributes qualifies as a Finance Lease.
• The lease arrangement transfers ownership of the asset to the lessee at the end of the
lease term.
• The lessee has the option to purchase the asset at a price that is expected to be sufficiently
lower than the fair value at the date the option becomes exercisable for it to be reasonably
Answer certain, at the inception of the lease, that the option will be exercised;
• The lease term is for the major part of the economic life of the asset even if title is not
transferred.
• At the inception of the lease, the present value of the minimum lease payments amounts
to at least substantially all of the fair value of the leased asset; and
• the leased assets are of such a specialized nature that only the lessee can use them without
major modifications

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