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Hello,
There is a short term exemption if the lease term is less than 12 months.
Couldn’t a leasee use this and sign 1 year agreements every year with the leassor and use the asset while still keeping it off the SFP?
This would be show a higher ROCE for the company but still in compliance with the standard.
Or should the accountant/auditor exercise judgement here and see if a particular asset is:
1. Is leased every year
2. Is so important to the business that it is likely to be leased every yearAnd if the above conditions are true, he should classify the lease as an finance lease.
Hi,
I think you’ve answered your questions with regards to the auditors exerting judgment but also professional scepticism. Don’t forget too that the accountant is bound by the ethical code too, which should prevent them from doing this. If it trasnpires that the lease is more than a year then yes it would be shown on the statement of financial position, just don’t use the work finance lease.
Thanks
If every accountant followed the ethical code the demand for auditors would be a lot lower 😉
So just to clear up, if an auditor sees a client renewing their lease every year with a 12 month contract, he should understand that this item must be shown in the SFP right?
But yeah, thanks for the prompt reply.
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