Auditing right-of-use assets and lease liabilities

How to audit a client's leases under IFRS 16: finding every lease, testing the definition and elections, and recalculating the liability and asset.

By Achekam · 11 October 2026 · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya

Most clients know about their office lease. Fewer remember the vehicle tracking units, the warehouse racking rented by the month, the generator on a three-year hire agreement, or the shop in the mall whose rent escalates every year. IFRS 16 brings most of those onto the balance sheet as a right-of-use asset and a lease liability, and the audit has to start by finding them.

After that come the judgements: is the contract a lease at all, has the client taken the short-term or low-value exemption properly, and are the present value calculations right? This article covers how to audit leases under IFRS 16, including clients in South Africa, Nigeria and Kenya that keep their lease register on Achekam.

Finding all the leases

Completeness is the first risk. A client that relies on its finance team's memory will miss leases that sit in operating departments. Search in several places:

the expense ledger, for rent, hire, rental and equipment accounts with regular payments;
the debit order and standing order list from the bank;
board minutes and legal files, for new premises, vehicles or equipment agreements;
procurement records, for service contracts that may contain a lease;
last year's lease register, to check every lease is either still there or properly ended.

Compare what you find with the client's register. Anything found outside it needs to be assessed.

Is it a lease: an identified asset and the right to control its use

ACCA explains that, under IFRS 16, a contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. That requires both the right to obtain substantially all the economic benefits from using the asset and the right to direct its use.

The identified asset test catches many service contracts. ACCA explains that an asset is not identified if the supplier has the right to substitute an alternative asset throughout the period of use, although a right or obligation to substitute it for repairs does not stop it being identified.

Practical audit questions for each contract:

Is a specific asset named or implied, such as a particular floor, vehicle or machine?
Can the supplier swap it for another whenever it likes, and would it benefit from doing so?
Does the client get substantially all of the benefit from using it during the period?
Who decides how and for what purpose it is used?

Read the contract. Many "service agreements" for storage, fleet or IT equipment are leases on these tests, and some agreements called leases are not.

Short-term and low-value elections

IFRS 16 lets lessees expense two kinds of lease instead of recognising them. ACCA explains that a short-term lease has a term of 12 months or less at commencement and cannot contain a purchase option, and that the election is made by class of asset. The low-value election, by contrast, is made lease by lease and assessed on an absolute basis regardless of the lessee's size. ACCA notes that a car lease does not qualify, while tablets, personal computers, small office furniture and telephones can.

Test the elections:

for short-term leases, check the term at commencement, including any extension options the client is reasonably certain to take, and that the class-level election is applied consistently;
for low-value leases, check the nature of the asset, not the size of the client;
watch for monthly rentals that have rolled on for years and are no longer short-term in substance.

Recalculating the liability and the asset

ACCA explains that a lessee recognises a right-of-use asset and a lease liability at commencement, with the liability initially measured at the present value of lease payments not yet paid. The right-of-use asset includes the initial lease liability, payments made at or before commencement less lease incentives received, the lessee's initial direct costs, and an estimate of dismantling, removal or site restoration costs.

For each significant lease, recompute:

The payments from the contract, including escalations, and agree the first payments to the bank.
The lease term, including options the client is reasonably certain to exercise.
The discount rate, and how the client derived it.
The opening liability as the present value of those payments, and the movement for the year: interest added, payments made, remeasurements.
The right-of-use asset from its components, and depreciation over the appropriate period.

Small errors in the rate or the term compound across a long lease, so test the inputs carefully. Treat the rate and the term as estimates; see auditing accounting estimates.

The lease register in Achekam, with AI drafts confirmed by a person

Achekam lets staff keep a client's lease register under IFRS 16 or under Section 20 of IFRS for SMEs. An AI can read a lease from the contract and prepare a draft entry, but the draft is not used until a person confirms it, and every number the AI reads must appear in the contract text. For the auditor, that gives two useful points of evidence: each lease on the register is tied to a contract, and each draft was reviewed by a named person before it counted. It does not replace the auditor's own reading of the significant contracts. Our article on the IFRS 16 lease register explains how firms build and maintain it.

The right-of-use asset and lease liability lines in the lead schedules come from the engagement's trial balance, each figure traceable to its lines. Where a recalculation differs from the client's figures, staff record an audit adjustment on the line with a reason, and raise a finding from the working paper to close or withdraw later.

Disclosure checks

The accounting policy states which elections the client uses.
Right-of-use assets are shown by class, with depreciation for the year.
The lease liability is split between current and non-current portions, and a maturity analysis is given where the framework requires.
Expenses for short-term and low-value leases are disclosed where required.
Significant judgements, such as extension options, are explained.

ACCA's technical article on IFRS 16 explains the definition of a lease, the exemptions and the initial measurement of the liability and asset, with worked examples useful for training staff.

Before fieldwork on your next audit, ask the client for its debit order list and every agreement with a monthly payment. Matching those to the lease register finds the missing leases faster than any other test.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.