Contract review is a missing-clause problem as much as a reading problem. The model worth using is the one that finds the clause buried on page 41 and that tells you when it cannot find one, not the one that summarises best. A fluent summary of a lease that leaves out an extension option is worse than no summary.
Last reviewed: 17 October 2026. Facts checked. We ran a search on the Ind AS 116 definition of a lease. We did not open the MCA-notified text; the closest sources that came back were an ICAI Expert Advisory Committee opinion and professional-firm guides, which agree on the points below. No model comparison or benchmark is claimed, because none could be sourced for contracts in India.
What auditors need from a contract
Typical asks include:
- Is there a lease inside this service or supply contract? Under Ind AS 116, a contract is or contains a lease if it gives the right to control the use of an identified asset for a period in exchange for consideration. The checks that follow from the guidance are whether the asset is identified, whether the supplier has a substantive right to substitute it, and whether the customer gets substantially all the economic benefits and directs its use.
- Term, renewal and termination options, and rent escalation.
- Related-party terms, penalties, guarantees, indemnities and change-of-control triggers.
- Dates and amounts that tie to the ledger.
For the accounting side, see lease accounting audit under Ind AS 116 and the lease testing checklist. For the broader technique, see contract analysis with NLP.
Four risks specific to contracts
- Long documents. A model may read the start and end well and weaken in the middle. Whether this happens with a given model has to be tested, not assumed.
- Cross-references. "Subject to Clause 14.3" and annexures, schedules and amendments that change earlier terms.
- Quiet omissions. The model reports what it found, and nothing signals what it missed.
- Scanned pages. If the text came through OCR, an error in a figure starts before the model sees it.
The test: plant clauses and see what comes back
You do not need a vendor's benchmark. You need ten to twenty contracts and a short answer key.
1. Choose a mix. Include a simple office lease, an equipment hire agreement that looks like a service contract, a long supply agreement with annexures, and a contract with an amendment letter. Mask names.
2. Build the key by hand. For each, record the term, options, escalation, penalty clauses, and your own view on whether a lease is embedded.
3. Plant at least five items. Add a clause to three or four contracts, such as a substitution right in a hire agreement, a renewal option inside an annexure, or a termination fee in a schedule. Place them in the middle of long documents.
4. Ask identical questions to each model. Use the same wording, and ask for the clause number and the quoted sentence for every answer.
5. Score on four lines.
| Measure | What to count |
|---|---|
| Found | Planted and genuine clauses correctly reported |
| Quoted accurately | Does the quoted text exist in the document, word for word? |
| False positives | Clauses reported that are not there |
| Honest gaps | Did it say "not found" where nothing exists? |
The quote check is the most useful of the lot. A model that must quote the sentence is easy to verify and harder to bluff with.
6. Check the Ind AS 116 judgement separately. Present three borderline arrangements and compare each model's reasoning with yours. Look for whether it considers substitution rights and who directs use, rather than just spotting the word "lease" or "rent".
Settings and habits that help
- Split a long contract by section and run the questions per section, then merge. Compare this with a single-pass run on your test set.
- Ask for a checklist-style answer with a clause reference, not a narrative.
- Run the same contract twice. Different answers to the same question mean the output needs a stronger human check.
- Keep the source file and the quoted text together in the working paper.
Controls before you rely on it
- A person reads the key clauses for every lease that affects a material balance. The model helps you find them; it does not replace reading them.
- Tie the dates, rent and term to the lease schedule and to payments in the bank statement.
- Note the model, version and date used. See model versioning and change control.
- Check the tool's data handling before uploading agreements that carry commercial terms. Where the data goes lists the questions.
Judgement stays with the auditor
Whether a contract contains a lease, how the term is set and which options are reasonably certain are accounting judgements. A model can lay out the facts. It cannot be accountable for the conclusion, and the entity's management carries the accounting responsibility in the first place.
Frequently Asked Questions
Can AI tell me if a contract contains a lease?
It can point to the clauses that matter. The conclusion needs the auditor's reading of the identified asset, substitution and control tests.
Is a bigger context window always better for contracts?
Not necessarily. Test recall on clauses placed in the middle of your longest documents.
How should I check a model's answer?
Ask for the clause number and the exact sentence, then open the document and confirm.
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