Co-working and Managed Office Audit: Leases, Deposits and Occupancy Revenue

A co-working audit checks that long head leases are recognised under the lease standard, that member deposits and advances are held as liabilities, that seat revenue is recorded as service is delivered, and that fit-out costs are depreciated over the right period. The model borrows space for years and sells it by the month, so timing and lease accounting decide the result.

Last reviewed: 17 October 2026. Facts checked. We did not run a new web search for this post, because the audit areas rest on the lease standard and general practice that are covered in earlier site posts. We did not open the standard, any lease agreement or any regulator page for this post. Statements about the accounting are hedged and should be confirmed against the standard and the facts of each contract. We name laws and standards without rates or thresholds. Existing site posts were checked so that links point to pages that exist.

What is distinctive about co-working

• The operator takes premises on a long head lease and sublets desks, cabins or floors on short terms.
• Revenue comes from seats, meeting rooms, virtual office services and add-ons.
• Members pay refundable security deposits and often a month or more in advance.
• Landlords may give rent-free periods, escalations and fit-out contributions that change the cost pattern.
• Occupancy drives margin. A low-occupancy site can become loss-making while still booked at full lease cost.
• Each site is a profit centre with its own lease, deposit and fit-out record.

Key risks

1. Lease accounting. Head leases left off the balance sheet or measured with the wrong term and discount rate.
2. Sublease classification. Member agreements treated as services when they may contain a lease, or the reverse.
3. Deposit handling. Member deposits used for operations and not kept as a liability.
4. Revenue timing. Advance payments or setup fees recognised up front.
5. Fit-out cost. Capital spend written off too fast or too slowly, or abandoned at exit.
6. Impairment. Weak sites carrying right-of-use assets and fit-out above their recoverable value.
7. Onerous sites. Closing sites with ongoing rent and exit costs.
8. Going concern. Fixed lease commitments exceeding cash inflows.

Audit programme in steps

Step 1: List sites and contracts

Prepare a schedule of sites with lease start date, term, lock-in, rent, escalation, free periods, deposit paid and landlord contributions. Obtain each head lease and agree the schedule to it.

Step 2: Test head lease accounting

Recompute the lease liability and right-of-use asset for a sample using the term, payment pattern and discount rate. Test treatment of rent-free periods, extension options and early termination. Apply the steps in our lease testing checklist and the lease accounting audit guide. Confirm that remeasurements follow a change in the term.

Step 3: Review member agreements

Read a sample of member contracts for what is actually provided: a defined space, services only, or both. Check lock-in and notice terms, termination charges and whether the operator can move the member. The outcome affects whether the income is service revenue or lease income.

Step 4: Test revenue recognition

Tie seat revenue to the occupancy and billing system. Check cut-off: advance billing is deferred and setup fees follow the pattern in which the service is delivered, using the logic in our revenue model walkthrough. Test credits, discounts and free-month offers, and add-on revenue such as meeting rooms.

Step 5: Test deposits and advances

Reconcile the deposit ledger to a member-wise list. Check ageing, refunds after exit, deductions made and the bank balance supporting the liability. Confirm a sample of deposits with members. A shortfall of bank balance against deposits is a finding even if the books balance.

Step 6: Test occupancy and collections

Compare reported occupancy with access logs or desk allocation records. Review receivables ageing and bad debts by site. Check that members who left are no longer billed.

Step 7: Test fit-out and capital spend

Vouch a sample of fit-out invoices and contractor bills, check capitalisation criteria and that depreciation runs over the shorter of the asset life and the lease term. See the fixed assets checklist. Review landlord contributions and how they are treated.

Step 8: Test impairment and exit

For each site with losses or low occupancy, obtain the forecast and check assumptions against actual occupancy and pricing. Test provisions for closing sites, dilapidation and notice periods.

Step 9: Review operating costs

Check utilities, housekeeping, internet and security contracts for completeness and cut-off. Compare cost per seat across sites to find outliers.

Step 10: Review tax and going concern

Test GST on rent, services and deposits, and input credit on rent paid to landlords, confirming current rules from the law. Check TDS on rent and contractor payments. Evaluate cash runway under lease commitments using our going-concern note.

Common findings

• Head leases on the books at a term different from the contract.
• Deposits from members spent, with bank balances below the ledger.
• Advance billing taken as income of the month billed.
• Fit-out depreciated over a longer period than the lease.
• No impairment review for weak sites.
• Occupancy figures that do not agree with billing.
• Former members still billed.

Which Indian rules to check

Name only. Verify current text:

• Indian Accounting Standards on leases, revenue, impairment and provisions.
• GST law on rent, accommodation-type services and deposits.
• The Income-tax Act provisions on TDS for rent and contractors.
• State shops and establishments and rent control or stamp duty rules for leases.
• Companies Act provisions on deposits, where member deposits may be treated as such.

FAQs

Is a co-working member agreement a lease?

It depends on whether the member controls an identified space. Read the contract terms.

Why do deposits matter so much?

They are owed back to members and are often spent first when cash is tight.

What is the first analytical check?

Compare rent cost, seats and billed revenue per site.

Related Articles

• Lease testing checklist
• Lease accounting audit procedures
• Lessor vs lessee examples
• Fixed assets internal audit checklist

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