My advice to the client is to record the entry in a more recommended aspect such that it will reflect in the final books of accounts. Therefore, the client should focus on presenting the lease option more clearly in their books of accounts as finance lease upon meeting the required threshold based on the framework recommended by IAS 17.

In a bid to ensure that the books are recorded, I will audit the lease agreement and present an essential summary of the crucial data and determine the classification guideline whether finance or operating lease. Additionally, examination of the cost to be borne by the lessee as well as the executory cost and report the findings in line with the provisions of IFR 16 on the lease option. This will imply that as part of the work, the client needs to disclose the information regarding the lease and should be recorded as a non-current liability with the value equivalent to it for the period in which the lease term relates.  The failure to disclose the lease with the  copy of the lease agreement evident will mean the company own the asset and hence during the disclosure, it will be reflected as a non-current asset. Thus, invalidating the lease agreement option which will not reflect the true and fair view. The accountant at Pacific needs to seek an advisory opinion in cases where is uncertain on reporting the major essential items which might raise issues during the audit.

In conclusion, Audit of the lease is usually a problem because of the critical component that auditors need to understand regarding the various type of lease to avoid making mistakes during the audit work such as wrongly classifying the lease as capital when it should be operating or finance lease. In view of the information disclosed above, I recommend the client to apply the information as a basis of fair reporting.

 
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