When auditing lease accounting, auditors perform various procedures to ensure compliance with accounting standards and regulations. Here

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Question:

When auditing lease accounting, auditors perform various procedures to ensure compliance with accounting standards and regulations. Here are some key audit procedures specifically related to operating leases:

Review Lease Agreements: Auditors review lease agreements to ensure they are properly documented, accurately reflect the lease terms, and comply with accounting standards such as ASC 842 or IFRS 16. They verify lease terms such as lease payments, lease term, renewal options, and any purchase options.

Assess Lease Classification: Auditors assess whether leases are correctly classified as operating leases or finance leases. Operating leases are treated as off-balance sheet arrangements, and auditors evaluate whether the lease meets the criteria for classification as an operating lease under relevant accounting standards.

Test Lease Payments: Auditors test lease payments to ensure accuracy and completeness. They reconcile lease payments to the lease agreement and supporting documentation, such as invoices and payment records. Any discrepancies or irregularities are investigated further.

Evaluate Lease Disclosures: Auditors evaluate the adequacy and completeness of lease disclosures in the financial statements. This includes disclosures related to lease obligations, future lease payments, lease terms, and related party transactions. Auditors ensure that disclosures comply with applicable accounting standards and provide users of the financial statements with relevant information about the entity's leasing activities.

Perform Substantive Procedures: Auditors perform substantive procedures to test the existence, completeness, and accuracy of lease-related balances and transactions. This may involve sampling lease agreements, lease payments, and related accounting entries to ensure they are properly recorded and reported in the financial statements.

Question:

Which audit procedure involves reviewing lease agreements to ensure they accurately reflect the lease terms and comply with accounting standards?explain.