Control Mech for Leases 1699

  • Our organization is in process of getting SOX 404 complient. The primary business is of leasing equipments.
    How do we approach about suggesting desirable controls. Please suggest

  • Hi and welcome to the forums 🙂 … You might search the Internet for COBIT 4.0 standards and guidelines, as many auditors use these to certify IT complicancy. While COBIT 4.0 is not mandated by SOX 404 standards themselves, it’s my understanding most External Auditors look for this in their SOX compliancy audits.
    Please add www and paste into your browser
    Some of these sites might try to ‘sell you something’ 😉 although more good links can be found here: 4.0 404 compliance

  • I would also recommend that you go to COSO (, in order to seek some guidance on how to establish internal controls for Financial Reporting.
    Once this has been done, you will need to identify processes under which your financial statements can be mapped, and start documenting from start to finish how each process is performed.
    After this is done, you should be able to develop and identify controls from the procedures documented and/ or identify additional controls that may need to be implemented in order to cover risks.

  • Thanks EMM – I agree with you 🙂 … COSO should also be considered in the mix … Both COBIT (the IT side) and COSO (the procedural side of financial controls) go hand-in-hand.

  • Hi,
    As a starting point, it might be a good idea to review the GAAP reporting requirements applicable to an equipment leasing entity or in connection with lease accounting.
    After understanding the financial reporting requireements and leasing activities, you can identify, document, and test the relevant internal controls over financial reporting (key controls) at your company.
    Some relevant accounting guidance/literature:
    FASB Statements of Financial Accounting Standards
    FAS 13 Accounting for Leases
    FAS 23 Inception of the Lease
    FAS 27 Classification of Renewals or Extensions of Existing Sales Type or Direct Financing Leases
    FAS 28 Accounting for Sales with Leasebacks
    FAS 29 Determining Contingent Rentals
    FAS 34 Capitalization of Interest Cost
    FAS 47 Disclosure of Long-Term Obligations
    FAS 71 Accounting for the Effects of Certain Types of Regulation (leases in
    regulated operations)
    FAS 91 Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases
    FAS 98 Accounting for Leases
    FASB Interpretations
    FASI 19 Lessee Guarantee of the Residual Value of Leased Property
    FASB Technical Bulletins
    FASTB 79-12 Interest Rate Used in Calculating the Present Value of Minimum Lease Payments
    FASTB 79-14 Upward Adjustment of Guaranteed Residual Values
    FASTB 79-16 Effect of a Change in Income Tax Rate on the Accounting for Leveraged Leases
    FASTB 79-17 Reporting Cumulative Effect Adjustment from Retroactive Application of FASB Statement No. 13
    FASTB 86-2 Accounting for an Interest in the Residual Value of a Leased Asset
    FASTB 88-1 Issues Relating to Accounting for Leases
    FASTB 90-1 Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts
    FASB’s Emerging Issues Task Force (EITF) Abstracts and Topics
    EITF D-8 Accruing Bad Debt Expense at Inception of a Lease
    EITF D-14 Transactions involving Special Purpose Entities (special purpose leasing entities)
    EITF D-24 Sale-Leaseback Transactions with Continuing Involvement
    EITF 84-37 Sale-Leaseback Transaction with Repurchase Option
    EITF 85-16 Leveraged Leases
    EITF 85-27 Recognition of Receipts from Made Up Rental Shortfalls
    EITF 86-17 Deferred Profit on Sale-Leaseback Transaction with Lessee Guarantee of Residual Value
    EITF 86-43 Effect of a Change in Tax Law or Rates on Leveraged Leases
    EITF 87-7 Sale of an Asset Subject to a Lease and Non-recourse Financing: Wrap Lease Transactions
    EITF 87-8 Tax Reform Act of 1986: Issues Related to the Alternative Minimum Tax (effect of AMT on leveraged leases)
    EITF 88-10 Costs Associated with Lease Modification or Termination
    EITF 88-21 Accounting for the Sale of Property Subject to the Seller’s Preexisting Lease
    EITF 89-16 Consideration of Executory Costs in Sale-Leaseback Transactions
    EITF 90-15 Impact of Nonsubstantive Lessors, Residual Value Guarantees, and Other Provisions in Leasing Transactions
    EITF 93-8 Accounting for the Sale and Leaseback of an Asset That Is Leased to Another Party
    EITF 95-1 Revenue Recognition on Sales with a Guaranteed Minimum Resale Value
    EITF 95-4 Revenue Recognition on Equipment Sold and Subsequently Repurchased Subject to an Operating Lease
    EITF 00-11 Lessors’ Evaluation of Whether Leases of Certain Integral Equipment Meet the Ownership Transfer Requirements of FASB Statement No. 13, Accounting for Leases
    Hope this further helps.

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