Lease Testing Checklist: Ind AS 116 Audit Procedures

Published: April 8, 2026 | Category: Template | Read Time: 7 minutes | Author: CORAA Team

How to Use This Checklist

Complete this checklist for every material lease identified in your audit. Keep one copy per lease in audit working papers.

Key Points:

• Complete for ALL material leases (≥ account materiality ÷ 8)
• Use during interim and year-end testing
• Cross-reference to ROU calculation workpaper
• NFRA will review this during inspections

Lease Testing Checklist Template

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           LEASE TESTING CHECKLIST (Ind AS 116)
═══════════════════════════════════════════════════════════════

CLIENT NAME:                   [Client name]
ENGAGEMENT YEAR:               [Year ended Dec 31, 202X]
LEASE DESCRIPTION:             [E.g., Office space lease, Equipment lease]
LESSOR:                        [Name]
LEASE COMMENCEMENT DATE:       [Date]

AUDIT TEAM:
- Preparer (Senior): ___________________  Date: __________
- Reviewer (Manager): ___________________  Date: __________
- Approval (Partner): ___________________  Date: __________

═══════════════════════════════════════════════════════════════

SECTION 1: LEASE IDENTIFICATION

Objective: Confirm this is a lease per Ind AS 116 definition.
A lease exists when: (1) Identified asset, (2) Right of control,
(3) Consideration paid.

─────────────────────────────────────────────────────────────

1.1 LEASE AGREEMENT OBTAINED

☐ Lease agreement obtained and reviewed
☐ Commencement date identified: _______________
☐ Lease term clearly stated: _____ years
☐ Renewal/termination options documented
☐ Reference: [Workpaper file location]

─────────────────────────────────────────────────────────────

1.2 LEASE DEFINITION TEST

Three-Part Test per Ind AS 116:

1. Identified Asset? ☐ Yes ☐ No
   - Is there a specific asset (office space, equipment)?
   - Describe: _________________________________

2. Right of Control? ☐ Yes ☐ No
   - Does lessee have exclusive use during lease term?
   - Describe: _________________________________

3. Consideration Paid? ☐ Yes ☐ No
   - Is rent/lease payment obligated?
   - Amount: ₹ _________________ per period

Overall Assessment:
☐ IS A LEASE (all 3 criteria met → proceed to ROU calculation)
☐ NOT A LEASE (criteria not met → not capitalized; expense only)

─────────────────────────────────────────────────────────────

1.3 EXEMPTIONS TEST

Is this lease exempt from capitalization?

Short-Term Lease Exemption:
- Lease term <12 months? ☐ Yes ☐ No
- If Yes, can use exemption (expense not capitalize)

Low-Value Asset Exemption:
- New asset value <₹3 lakh? ☐ Yes ☐ No
- If Yes, can use exemption (expense not capitalize)
- Note: Company policy threshold: ₹ __________

Conclusion:
☐ No exemptions apply → CAPITALIZE (proceed to Section 2)
☐ Exemption applies → EXPENSE (do not capitalize)

═══════════════════════════════════════════════════════════════

SECTION 2: LEASE TERM DETERMINATION

Objective: Determine total lease term including renewal options
if likely to be exercised.

─────────────────────────────────────────────────────────────

2.1 LEASE TERM COMPONENTS

Initial Lease Term:
- Lease starts: ________________  (date)
- Lease ends: ________________  (date)
- Years: ____________

Renewal Options:
- Renewal option exists? ☐ Yes ☐ No
- Renewal term: _______ years
- Renewal rent: ₹ __________ per year
- Likely to exercise? ☐ Yes ☐ No ☐ Uncertain
- If Yes/Uncertain, document rationale: [Describe]

Termination Options:
- Termination option exists? ☐ Yes ☐ No
- Termination fees? ₹ __________
- Likely to terminate early? ☐ Yes ☐ No
- If Yes, impact on lease term: [Describe]

─────────────────────────────────────────────────────────────

2.2 DETERMINATION OF TOTAL LEASE TERM

Management Assessment:
- Management judgment on renewals: [Documented?]
- Economic incentive to renew? [Describe]
- Industry practice? [Market rental, lease terms]

Auditor Assessment:
- Management assessment reasonable? ☐ Yes ☐ No
- Supporting evidence obtained? ☐ Yes ☐ No
- Challenge/inquiry if needed? ☐ Yes ☐ No

Final Lease Term for ROU Calculation:
Total Term: _____ years = Initial _____ + Renewal _____

Documentation:
- Lease term memo prepared? ☐ Yes
- Basis for renewal assessment documented? ☐ Yes
- Reference: [Workpaper file location]

═══════════════════════════════════════════════════════════════

SECTION 3: LEASE PAYMENTS IDENTIFICATION

Objective: Identify all lease payments (fixed, variable, residual)
that should be included in ROU calculation.

─────────────────────────────────────────────────────────────

3.1 FIXED LEASE PAYMENTS

Year 1 Payment: ₹ __________
Year 2 Payment: ₹ __________
Year 3 Payment: ₹ __________
Year 4+ Payment: ₹ __________

Total Fixed Payments (over lease term): ₹ __________

Verification:
- Lease agreement reviewed? ☐ Yes ☐ No
- Fixed payments stated clearly? ☐ Yes ☐ No
- Any escalation clauses? ☐ None ☐ CPI ☐ Other: ________
- Escalation amounts quantified? ☐ Yes ☐ No

─────────────────────────────────────────────────────────────

3.2 VARIABLE LEASE PAYMENTS

Variable payments (e.g., percentage of turnover)?
☐ None
☐ Yes: ₹ __________ (description: ________________)

Treatment:
- Per Ind AS 116, variable payments generally NOT included
- Exception: If amounts depend on an index/rate
- Included in ROU? ☐ Yes ☐ No

─────────────────────────────────────────────────────────────

3.3 RESIDUAL VALUE / PURCHASE OPTION

Guaranteed Residual Value:
- Guaranteed? ☐ Yes ☐ No
- Amount: ₹ __________
- At lease end, who bears residual value risk?
  ☐ Lessee  ☐ Lessor
- If lessee guaranteed, include in ROU? ☐ Yes ☐ No

Purchase Option:
- Purchase option exists? ☐ Yes ☐ No
- Option price: ₹ __________
- Likely to exercise? ☐ Yes ☐ No
- If yes, include in ROU? ☐ Yes ☐ No

─────────────────────────────────────────────────────────────

3.4 INITIAL DIRECT COSTS

Costs incurred to initiate lease:
- Legal fees: ₹ __________
- Brokerage/finder fees: ₹ __________
- Lease negotiation: ₹ __________
- Total Initial Direct Costs: ₹ __________

Include in ROU? ☐ Yes ☐ No
Reference: [Cost documentation]

═══════════════════════════════════════════════════════════════

SECTION 4: DISCOUNT RATE DETERMINATION

Objective: Select appropriate discount rate for present value
calculation (critical for ROU accuracy).

─────────────────────────────────────────────────────────────

4.1 LESSOR'S IMPLICIT RATE

Is implicit rate available in lease agreement?
☐ Not stated
☐ Yes: __________ %

If Yes, reasonableness check:
- Compare to company's borrowing rate
- Assess for commercial reasonableness
- Document assumption if using implicit rate

─────────────────────────────────────────────────────────────

4.2 LESSEE'S INCREMENTAL BORROWING RATE

If implicit rate not available, calculate incremental
borrowing rate (rate company would pay to borrow lease funds):

Calculation Method:
- Company's credit rating: [Rating]
- Bank borrowing rate (similar term): __________ %
- Credit spread adjustment: __________ %
- Risk adjustment: __________ %
- Final Incremental Rate: __________ %

Supporting Documentation:
- Bank quotes obtained? ☐ Yes ☐ No
- Credit analysis completed? ☐ Yes ☐ No
- Rates updated annually? ☐ Yes ☐ No

─────────────────────────────────────────────────────────────

4.3 DISCOUNT RATE SELECTED

Discount Rate Used in ROU Calculation: __________ %

Rationale:
- Rate source: ☐ Implicit ☐ Incremental Borrowing
- Reasonableness verified? ☐ Yes ☐ No
- Comparable to prior year? ☐ Yes ☐ No (if change, explain)

Reasonableness Test:
- Compare rate to: [Market rates, company's borrowing rates]
- Is rate reasonable for lease? ☐ Yes ☐ No
- Any concerns? [Describe]

═══════════════════════════════════════════════════════════════

SECTION 5: ROU ASSET CALCULATION VERIFICATION

Objective: Independently verify ROU asset calculation matches
formula: PV of lease payments + Initial direct costs

─────────────────────────────────────────────────────────────

5.1 PRESENT VALUE CALCULATION

Management's ROU Calculation: ₹ __________
(Reference: [Client's workpaper location])

Auditor's Verification:

Year 1 Payment: ₹ __________  ÷ (1 + rate)^0.5 = ₹ __________
Year 2 Payment: ₹ __________  ÷ (1 + rate)^1.5 = ₹ __________
Year 3 Payment: ₹ __________  ÷ (1 + rate)^2.5 = ₹ __________
[Continue for all years]

Total PV of Payments: ₹ __________
+ Initial Direct Costs: ₹ __________
= Initial ROU Asset: ₹ __________

Reconciliation:
Management's ROU: ₹ __________
Auditor's Calculation: ₹ __________
Difference: ₹ __________

☐ Matches perfectly
☐ Minor difference (₹ __________ - acceptable)
☐ Material difference (investigate)

─────────────────────────────────────────────────────────────

5.2 BALANCE SHEET VERIFICATION

ROU Asset Recorded on Balance Sheet:
- Fixed Assets category: ___________________
- Amount: ₹ __________
- Compare to auditor's calculation: ☐ Matches ☐ Differs
- Cross-reference to GL: [Account & GL line]

Lease Liability Recorded on Balance Sheet:
- Current portion: ₹ __________
- Non-current portion: ₹ __________
- Total liability: ₹ __________
- Compare to auditor's calculation: ☐ Matches ☐ Differs
- Cross-reference to GL: [Account & GL line]

═══════════════════════════════════════════════════════════════

SECTION 6: SUBSEQUENT MEASUREMENT (YEAR-END)

Objective: Verify year-end ROU asset and lease liability
balances are correctly calculated and presented.

─────────────────────────────────────────────────────────────

6.1 DEPRECIATION OF ROU ASSET

ROU Depreciation (Year):
- Initial ROU: ₹ __________
- Depreciation method: Straight-line
- Useful life (= lease term): _____ years
- Annual depreciation: ₹ __________

Year-End ROU Balance:
- Opening balance: ₹ __________
- Less: Depreciation this year: ₹ __________
- Ending ROU Asset: ₹ __________

Verification:
- Depreciation recorded in P&L? ☐ Yes ☐ No
- GL entry: [GL account & amount]
- Ending balance matches GL? ☐ Yes ☐ No

─────────────────────────────────────────────────────────────

6.2 LEASE LIABILITY CALCULATION (Year-End)

Opening Lease Liability: ₹ __________
+ Interest expense (opening balance × rate): ₹ __________
- Lease payments made during year: ₹ __________
= Ending Lease Liability: ₹ __________

Breakdown by Current/Non-Current:
- Principal due within 12 months: ₹ __________
- Principal due >12 months: ₹ __________
- Total Lease Liability: ₹ __________

Verification:
- Interest expense recorded in P&L? ☐ Yes ☐ No
- GL entry: [GL account & amount]
- Ending balance matches GL? ☐ Yes ☐ No

─────────────────────────────────────────────────────────────

6.3 RECONCILIATION TO GL

GL Reconciliation:
- ROU Asset (GL): ₹ __________
- Auditor calculation: ₹ __________
- Matches? ☐ Yes ☐ No

- Lease Liability (GL): ₹ __________
- Auditor calculation: ₹ __________
- Matches? ☐ Yes ☐ No

Adjustments (if any):
- Adjustment: [Description]
- Amount: ₹ __________
- Impact: P&L or Balance Sheet

═══════════════════════════════════════════════════════════════

SECTION 7: MODIFICATIONS & TERMINATIONS

Objective: If lease was modified or terminated during year,
verify proper accounting treatment.

─────────────────────────────────────────────────────────────

7.1 LEASE MODIFICATIONS

Was lease modified during year? ☐ Yes ☐ No

If Yes:
- Modification date: ______________
- Type: ☐ Extended term  ☐ Changed payment  ☐ Other
- Description: _________________________________

Accounting Treatment:
- New lease (discontinue old; record new)? ☐ Yes ☐ No
- Modification of existing lease? ☐ Yes ☐ No

If modification of existing:
- ROU recalculated? ☐ Yes ☐ No
- Retroactive adjustment? ☐ Yes ☐ No
- Impact on current year: ₹ __________

─────────────────────────────────────────────────────────────

7.2 LEASE TERMINATIONS

Was lease terminated during year? ☐ Yes ☐ No

If Yes:
- Termination date: ______________
- Remaining term at termination: _____ years
- Termination fees: ₹ __________

Derecognition Calculation:
- ROU asset (remaining): ₹ __________
- Less: Lease liability (remaining): ₹ __________
- Less: Termination fees: ₹ __________
- Gain/(Loss) on termination: ₹ __________

GL Verification:
- Termination loss recorded? ☐ Yes ☐ No
- GL entry: [Account & amount]
- ROU asset removed? ☐ Yes ☐ No
- Lease liability removed? ☐ Yes ☐ No

═══════════════════════════════════════════════════════════════

SECTION 8: DISCLOSURES VERIFICATION

Objective: Verify Ind AS 116 disclosures are complete and
accurate in financial statements.

─────────────────────────────────────────────────────────────

8.1 REQUIRED DISCLOSURES PRESENT

Lease disclosures in notes:

☐ Nature of leases disclosed (property, equipment, vehicles)
☐ Maturity analysis: Undiscounted lease payments by year
☐ ROU assets balance disclosed
☐ Lease liabilities balance disclosed (current + non-current)
☐ P&L impact: Depreciation and interest disclosed
☐ Cash flow: Operating vs. financing split disclosed
☐ Sensitivity analysis: 1% rate change impact
☐ Any other disclosures per Ind AS 116

Missing disclosures (if any): [List & require client to add]

─────────────────────────────────────────────────────────────

8.2 DISCLOSURE ACCURACY

Maturity Analysis:
- Year 1 payments: ₹ __________ (verify from lease term)
- Year 2 payments: ₹ __________
- Year 3+ payments: ₹ __________
- Undiscounted total: ₹ __________
- Matches lease terms? ☐ Yes ☐ No

Balance Sheet Amounts:
- ROU asset disclosed: ₹ __________ (matches GL? ☐ Yes ☐ No)
- Lease liability disclosed: ₹ __________ (matches GL? ☐ Yes ☐ No)

P&L Amounts:
- Depreciation: ₹ __________ (matches GL? ☐ Yes ☐ No)
- Interest expense: ₹ __________ (matches GL? ☐ Yes ☐ No)

═══════════════════════════════════════════════════════════════

SECTION 9: NFRA DEFENSIBILITY

Objective: Ensure testing is documented comprehensively for
NFRA inspection review.

─────────────────────────────────────────────────────────────

9.1 DOCUMENTATION COMPLETENESS

Documentation in Audit File:
☐ Lease agreement (or significant excerpts)
☐ Lease term determination memo
☐ ROU calculation workpaper (independent verification)
☐ Lease liability calculation
☐ GL reconciliation
☐ Modification/termination documentation (if applicable)
☐ Disclosure review checklist
☐ Audit conclusion memo

All workpapers have:
☐ Clear objective stated
☐ Procedure described
☐ Results documented
☐ Audit conclusion with significance
☐ Preparer/reviewer/approval signatures

─────────────────────────────────────────────────────────────

9.2 AUDIT CONCLUSION

Overall Assessment:

Lease ROU Asset Testing:
☐ ROU calculation tested independently
☐ Lease term appropriately determined
☐ Discount rate reasonable
☐ Year-end balance agrees to GL
☐ NO material errors identified

Lease Liability Testing:
☐ Liability calculation verified
☐ Interest expense reasonable
☐ Current/non-current classification correct
☐ Year-end balance agrees to GL
☐ NO material errors identified

Disclosure Testing:
☐ Required disclosures present
☐ Disclosure amounts accurate (reconciled to GL)
☐ Sensitivity analysis provided
☐ NO material disclosure deficiencies

Overall Conclusion:
☐ Lease tested per ISA 330
☐ Sufficient audit evidence obtained
☐ ROU asset and liability fairly stated
☐ Disclosures complete and accurate
☐ NFRA defensible

═══════════════════════════════════════════════════════════════

SIGN-OFF

Preparer (Senior Auditor):
Name: ____________________  Signature: ______________
Date: ____________________

Reviewer (Manager):
Name: ____________________  Signature: ______________
Date: ____________________

Partner Approval:
Name: ____________________  Signature: ______________
Date: ____________________

═══════════════════════════════════════════════════════════════

END OF LEASE TESTING CHECKLIST

Key Checkpoints for Lease Testing

Critical:

1. Lease term includes renewal options if likely to exercise
2. Discount rate is reasonable (not just company's borrowing rate)
3. ROU calculation independently verified (don't just accept management's)
4. Year-end balances reconcile to GL
5. Disclosures include maturity analysis and sensitivity analysis

Common Errors to Catch:

• Hidden leases embedded in service contracts
• Renewal options omitted from lease term
• Wrong discount rate (overstates ROU)
• Incomplete disclosures (missing maturity analysis)
• Lease modifications not accounted for

Related Resources

• Lease Testing FAQs: Ind AS 116 Audit Procedures
• Contract NLP: Lease Identification & Testing
• Audit Risk Scorer: Assessment Framework

About CORAA

CORAA helps Indian audit firms test leases per Ind AS 116. Use this checklist for systematic lease identification, ROU verification, and disclosure completeness testing.

Learn more: Visit our website

Sources

• Ind AS 116: Leases
• ISA 330: The Auditor's Responses to Assessed Risks
• ISA 500: Audit Evidence
• NFRA: National Financial Reporting Authority - Audit Quality Review Standards