Sample interview questions: How do you evaluate the accounting for leases (ASC 842)?
Sample answer:
Evaluation of Accounting for Leases (ASC 842)
Key Considerations:
- Identification of Leases: Determine whether arrangements meet the definition of a lease under ASC 842.
- Lease Classification: Classify leases as operating or finance leases based on the transfer of ownership and risks.
- Recognition and Measurement: Record assets and liabilities on the balance sheet at fair value for both finance and operating leases.
- Amortization and Interest Expense: Amortize the right-of-use asset and recognize interest expense over the lease term, considering implicit rates.
- Variable Lease Payments: Estimate variable payments using reasonable assumptions and allocate them appropriately.
- Lease Modification and Termination: Assess the impact of lease modifications and terminations on the recognition, measurement, and disclosure of lease transactions.
- Impairment: Evaluate the potential for impairment of lease assets if there is an indication of possible future lease payments not being made.
Additional Considerations for Auditors:
- Review Lease Documentation: Obtain and review lease agreements to verify lease classification, payment terms, and other relevant information…. Read full answer