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I am an auditor of a trading company which has ...

I am an auditor of a trading company which has shown an account of“Leasehold property” in their b...

I am an auditor of a trading company which has shown an account of“Leasehold property” in their books. How should I verify this account?

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Chiranjibi Chapagain Mar. 14, 2018

Following are the main steps involved in verification and vouching of leasehold property-

  • Inspect the lease agreement to ascertain the amount of premium, if any, for securing the lease and terms and conditions. A lease exceeding the period of one year is not valid unless it has been registered by an instrument. Hence this has to be ensured.
  • Ascertain that all the conditions, the failure of which may result in cancellation of the lease have been complied with, e.g. payment of ground rent, insurance premium, maintenance of lease and property in satisfactory state etc.
  • Ensure that due provisions for any claims that might arise under the dilapidation clause on the expiry of the lease have been made. If such provision has not been made, the auditor should draw the client’s attention to it.
  • Ensure that the outlay and legal expenses incurred to acquire lease property have been capitalised. The property must be written off in such a way that it completely wipes off the asset at the end of the lease period.
  • He should ascertain that the clause entitles the lessee to sub let any part of the leased property and ensure its proper compliance.

I am an auditor of a trading company which has shown an account of“Leasehold property” in their books. How should I verify this account?

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