As organizations adjust to new lease accounting processes, remember that auditors are also learning how to properly audit under the new standards. That’s why it’s critical to keep lines of communication open with your auditors to get the transition to ASC 842, IFRS 16, and GASB 87 right. Here are four things you should review with your auditors right away:
1 - Status of Implementation
Share with your auditors how far along in the implementation of the new standards you are. Are you just assessing the impact? Are you gathering contracts and identifying leases? Have you fully or partially adopted? Are you using spreadsheets or a system to perform the calculations?
2 - Schedules
Prepare your schedules well in advance of your audit so you’re prepared to review them before booking any journal entries. If you’re a public company, make sure you address how you’re calculating your incremental borrowing rate (IBR) and your auditors agree with your assessment of it.
3 - Completeness Check
Auditors will be required to perform a completeness check to make sure liabilities are not being underreported. Provide your auditors with support on how you identified your leases so they can ensure that all leases are properly captured on the balance sheet.
4 - Subleases
Subleases can be complicated under the new standards, and vary depending on whether you’re an ASC 842, IFRS 16 or GASB 87 entity. Discuss how your business is handling subleases to make sure they’re accounted for correctly under the standard you’re subject to.