Audit of Hire Purchase & Leasing Company

Hire Purchase CompaniesIn case of hire purchase companies, auditor should consider

followingmatters:-

Ensure that hire purchase agreements is in writing & signed by all the parties.

Examine the hire purchase agreement noting the following matters:- Hire purchase price Cash price Number of installments Amount of installments The date on which agreement shall be deemed to have

commenced The place of payment The mode of payment Due date of payment The person to whom payment is to be made etc…

Ensure that installments are being received regularly and in case of old outstanding installments, appropriate provision have been made.

Where goods are repossessed by vendor on account of default made by hirer, ensure that such repossessed goods are valued at reasonable & consistent basis.

Leasing CompaniesMode of operation:-

Lessee will select the equipment & satisfy himself about its functional fitness.

Lessee will approach lesser & submit lease proposal form.

Lease terms are broadly negotiated i.e. lease agreement will be finalised.

Lesser will place an order with manufacturer.

Manufacturer will deliver the equipment at site. (invoice)

Lessee will issue letter of acceptance.

AS19 Lease (types)

Financial lease risk Operating lease risk& reward of ownership & reward of ownershipis transferred to lessee. Is retained by lesser.

In case of leasing company, the auditor should consider followingmatters:-

Examine the object clause of leasing company to see whether company can undertake activities in respect of capital goods, consumer durables etc… also see whether or not, company can undertake financial activity.

Ensure that there exist an appropriate credit appraisal system to access credit worthiness of lessee for example past record of debt repayment, capital strength, gross/net income per annum etc…

Examine lease agreement & noting the following matters:- Description of lesser, lessee & equipment. The location where equipment is to be installed.

Tenure of lease. Amount of lease rent. Due date of payment. Any provision for late charges, deposit or advance. Whether lease agreement gives right to lessee to sublet the

equipment. Examine lease proposal form submitted by lessee requesting

the lesser to provide him equipment on lease. See that invoice is being safely retained since lease is a long

term contract. Examine acceptance letter obtained from lessee indicating there

in the equipment has been received in order & acceptable to the lessee.

Where lessee is a company ensure that board resolution has been passed authorizing particular director to execute lease agreement on behalf of lessee company.

See that copies of insurance policies have been obtained by the lesser for his records.