Inaccurate lease accounting can lead to a host of problems for an organization, such as wasting time and resources and a failed audit. One of the key areas auditors review during the audit process is whether a company’s financial statements are complete.
This is where the completeness assertion becomes important.
In lease accounting, completeness means a company has identified and included all lease arrangements that should be recorded or disclosed under the applicable lease accounting standard.
What is completeness assertion?
In auditing, completeness assertion means that all transactions, account balances and disclosures that should be included in the financial statements have been recorded.
In simple terms, auditors want to confirm that nothing important has been left out.
For lease accounting, the completeness assertion means all lease arrangements have been identified, reviewed and properly accounted for. This includes leases that are clearly labelled as lease agreements, as well as embedded leases that may be hidden within service contracts, supply agreements or other business arrangements.
A lease completeness issue can occur when a company leaves out a lease that should have been recorded. This can cause the company to understate its lease liabilities, right-of-use assets and related disclosures.
Auditing completeness under ASC 842
Under ASC 842, organizations are required to recognize right-of-use assets and lease liabilities for most operating and finance leases. This changed the way many businesses manage lease accounting because leases that were previously treated off the balance sheet may now need to be reflected directly in the financial statements.
Because of this, companies need a complete and accurate population of leases.
A complete lease population includes all agreements that meet the definition of a lease under ASC 842. It should also include details such as lease terms, payment schedules, renewal options, termination clauses, discount rates, commencement dates and amendments.
Completeness does not only mean adding leases to a spreadsheet. It means having a reliable process to identify, review, approve, track and update lease data throughout the lease lifecycle.
What is audited under completeness assertion?
When a business is audited under ASC 842, an auditor will assess completeness across several areas. This may include reviewing lease calculations, supporting documentation, footnote disclosures, embedded leases and the company’s internal controls around lease identification.
Lease calculations
Auditors make sure initial balances are calculated correctly and that lease expenses and ROU asset amortization are accurately recorded. They’ll also check to make sure all lease transactions are recorded within the correct accounting period.
Footnote disclosures
ASC 842 requires both quantitative and qualitative lease disclosures. Auditors check footnote disclosures to ensure required information, including assets, liabilities, lease expenses, cash flow details and other lease-related disclosures, is properly included. They also look at the qualitative information that explains what the numbers mean for the company.
Embedded leases
Auditors may ask how the company identifies embedded leases. They may review service contracts, vendor agreements and other arrangements to confirm that lease components have not been missed.
This is especially important for companies that rely on large vendor contracts or agreements that include the use of dedicated equipment, vehicles, space or other assets.
How to ensure accurate completeness assertions
To support accurate completeness assertions, companies need a strong process for identifying and tracking leases. This starts with communication across departments. Accounting teams should work with procurement, legal, real estate, operations, IT and other departments that may enter into contracts involving leased assets.
Companies should also maintain a centralized lease inventory. This inventory should include all active leases, embedded leases, amendments, renewals and termination details.
Ignoring this step can lead to a waste of time, money and professional resources, especially during audits, along with costly fines or penalties if financial statements are misrepresenting leased assets.
Identifying a complete population of leases can be a large undertaking, depending on how centralized a business’ operations are. Typically, this process involves inquiries with department heads along with a detailed review of accounts payable. Because of this, it’s important to maintain seamless and ongoing communication across departments.
Getting started with lease compliance
Completeness is not something companies should only think about during audit season. It should be part of an ongoing lease accounting process.
To improve lease completeness, businesses should regularly review contracts, communicate with department leaders, maintain accurate lease records and document how lease decisions are made.
This is especially important under ASC 842, where missing leases can impact the balance sheet, disclosures and overall audit readiness
How lease accounting software can help
Managing completeness manually can be difficult, especially for organizations with many leases, business units or locations. Lease accounting software can help companies centralize lease data, track key dates, manage documentation and support audit readiness.
With the right system, teams can store lease agreements, track amendments, monitor payment schedules and organize the evidence auditors may request. This can help reduce the risk of missing leases and make it easier to support completeness assertions during an audit.
Instead of relying on scattered spreadsheets or disconnected records, companies can use one system to manage lease information throughout the lease lifecycle.
Interested in lease accounting? Schedule a demo with Visual Lease to see how the right software can help your team manage lease data, support compliance and prepare for audits with more confidence.
