No one looks forward to an audit, especially when you’re taking on new responsibilities like lease accounting. What’s the best way to have a smooth audit? In short, your records need to be complete and accurate with the right controls. There are certain things your auditor needs that can make the audit faster if you’re prepared. In this article, we are going to explain initial compliance and disclosure requirements, preparing for that audit, where to find your lease and data elements, and the role technology plays in simplifying your process. No matter which standard matters for you (ASC 842, GASB 87, GASB 96, or IFRS 16), the right preparation can help your audit go smoothly.
When you’re preparing your documents and data for audit, it’s important to have everything organized and ready for the auditor. The auditor is going to check for completeness and accuracy across all of your processes and accounting. They’ll be checking that expenses are correct and meet the terms of all your agreements, including leases.
To get ready, it’s important to take inventory of all your leases. Make sure you’ve captured the key data fields like start and end dates, payment schedule, interest rates (and how you calculated them), and the present value of future lease payments. Make sure to have copies of the contracts and agreements, too. Be prepared to talk through your policies and procedures and how decisions are made, like around the capitalization threshold. Having documentation ready to go will streamline the audit.
Showing your work to your auditor can be a bit nerve wracking. But, it doesn’t have to be. Lessees and lessors can make this a seamless process.
For lessees, you’ll start with sharing your journal entries which will help establish your right-of-use (ROU) assets, lease liabilities, and amortization schedules. Lessors will need the schedules for lease receivables and what deferrals are being made. When your disclosures are formatted properly with all the details you need, the audit is smooth sailing.
Let’s be honest, spreadsheets are time-consuming and risky, even though almost everyone starts out using them (check out Confessions of a Spreadsheet Martyr). The manual reporting takes a lot of time and there’s no centralized database or critical date notifications or validation which creates more risk.
The right technology, like EZLease, will help you keep your data organized and ready for compliance audit at the push of a button. When you use technology, you have automatic validators to verify the lease data input and mapping to GL accounts. The reports that your auditors need are generated automatically by the system so you have output you can trust.
Everything is streamlined. Audits become less of a process, because you’ve got this covered!
The accuracy of accounting records is critical for an auditor and this is especially true when it comes to lease information. Your auditor wants to see accurate and complete lease accounting data, and you can achieve this with an understanding of what an auditor needs and by using the right software solution. To get an auditor’s perspective on this, listen to this webinar replay.
Or, see how easy it is to manage your lease accounting with a trial of EZLease.