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Article
Publication date: 16 August 2021

Su-Jane Hsieh and Yuli Su

The purpose of this paper is to investigate whether financial analyst coverage affects the dissemination of disclosed operating lease information into cash flow predictions and…

Abstract

Purpose

The purpose of this paper is to investigate whether financial analyst coverage affects the dissemination of disclosed operating lease information into cash flow predictions and stock prices.

Design/methodology/approach

The difference in lease expense between capital/finance lease and operating lease reporting is estimated based on the approach in Hsieh and Su (2015). This difference is referred to as the earnings impact from operating lease capitalization and is only available from footnotes. The authors then include the level of financial analyst following in a cash flow model to study its impact on the cash flow predictive value of the earnings impact. Similarly, the level of financial analyst following is inserted in an earnings-return model to assess the effect of analyst coverage on the association between contemporaneous stock returns and earnings impact.

Findings

The authors find that the cash flow predictive value of the earnings impact shifts to the interaction between analyst coverage and the earnings impact, suggesting that the decision-usefulness of the earnings impact is conditioned on the level of analyst following. Nevertheless, the authors find that the earnings impact continues to have explanatory value for the contemporaneous stock returns, while the interaction between analyst coverage and the earnings impact does not. This finding suggests that the earnings impact is already fully reflected in stock prices regardless of analyst following.

Research limitations/implications

Since the estimation of the earnings impact from reporting operating leases as capital leases is based on the method developed by Imhoff et al. (1991), the results and inferences are thus constrained by the validity of the method.

Practical implications

The authors find that financial analyst activities accelerate the incorporation of the earnings impact from operating lease capitalization in cash flow predictions, but it does not promote the impounding of the earnings impact into stock prices. This finding suggests that financial analysts' influence on the dissemination of the earnings impact hinges on the type of economic activity, and failing to consider the financial analyst following in studying the cash flow predictive value of the earnings impact would obscure the findings.

Originality/value

The authors extend the findings of prior research that financial analysts' activities promote the incorporation of firm-specific information into stock prices by investigating the impact of financial analysts on the dissemination of disclosed operating lease information.

Details

Journal of Applied Accounting Research, vol. 23 no. 2
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 13 July 2022

Kenneth J. Hunsader, Christopher M. Lawrey and James Rich

This paper aims to examine the impact on firm financial distress by industry of one of the most recent accounting changes in the treatment of operating leases, Financial…

Abstract

Purpose

This paper aims to examine the impact on firm financial distress by industry of one of the most recent accounting changes in the treatment of operating leases, Financial Accounting Standard Board (FASB) Accounting Standards Update (ASU) No. 2016–02, Leases released February 25, 2016. ASU 2016–02, also known as ASC 842, considerably changed how firms account for operating leases.

Design/methodology/approach

The authors use the Black–Scholes–Merton (BSM) option pricing methodology to estimate the change in default likelihood (DL) of nine different industries surrounding the adoption of ASC 842. In addition, the authors use univariate and multivariate analysis to test the statistical significance of firm-related factors.

Findings

The authors provide evidence that numerous industry’s DL increased following the FASB’s announcement of the new standard (ASC 842) regarding increased transparency in lease recognition. The effect is especially significant within the energy industry, although it is also shown in the consumer durables, manufacturing, hi-tech equipment, telecom, retail and wholesale and transportation industries. In addition, the authors find the effect is more pronounced for firms with high leverage, low financial slack, low operating return on assets, small market value and accounting for non-balance sheet recorded leases.

Practical implications

By investigating different industries, this study’s findings provide crucial insight to managers seeking lease financing as an operational strategy in a post-implementation environment and help them understand the impact of this new standard on their firm. Furthermore, this study answers the call of policy makers and academics to provide insight into the impact of updated leasing standards.

Originality/value

This is the only empirical study that examines the impact of ASC 842 on the DL of publicly traded firms by industry.

Details

Review of Accounting and Finance, vol. 21 no. 4
Type: Research Article
ISSN: 1475-7702

Keywords

Book part
Publication date: 6 September 2016

Natalie Tatiana Churyk, Alan Reinstein and Lance Smith

This exercise exposes students to complex lease transactions, requiring research in the FASB Accounting Standards Codification, archived standards, and future standards (exposure…

Abstract

Purpose

This exercise exposes students to complex lease transactions, requiring research in the FASB Accounting Standards Codification, archived standards, and future standards (exposure drafts (ED)).

Design/methodology/approach

Case study/exercise/assignment.

Findings

Students analyze how a retail establishment examines lease transactions to ensure its practices are in line with its mission. Students gain experience researching archived, current, and future standards. Student feedback suggests that students feel the exercise is valuable because it reinforces what they learned in earlier courses and it requires them to understand all aspects related to capital and operating leases. Furthermore, direct assessment data based on grading rubrics indicates that most students meet instructor expectations and indirect assessment data based on student perceptions indicates students are meeting the exercise learning outcomes.

Originality/value

This learning exercise fosters critical thinking skills; emulating professional practice issues and enhancing written and communication skills. It reinforces graduate students’ undergraduate learning related to leases.

Details

Advances in Accounting Education: Teaching and Curriculum Innovations
Type: Book
ISBN: 978-1-78560-969-5

Keywords

Article
Publication date: 2 June 2021

Alan Teixeira

The International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) have given relief to lessees in response to the coronavirus (COVID-19…

Abstract

Purpose

The International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) have given relief to lessees in response to the coronavirus (COVID-19) pandemic. However, it is not clear why any relief from the requirements in International Financial Reporting Standards (IFRS) or the Accounting Standards Codification (ASC) should be necessary. The purpose of this paper is to highlight weaknesses in how the IASB and FASB developed their leases Standards, and why those Standards are not robust enough to cope with a shock to the economic system.

Design/methodology/approach

The COVID-19 relief suspends some features of the leasing requirements rather than changing them. What if other economic or regulatory events cause the same circumstances to arise?

Findings

Have COVID-19 exposed weaknesses in the leasing standards that should have been avoided when they were developed or is COVID-19 the problem?

Originality/value

Analysis of actual board discussions and staff papers is unusual and provides insights into the standard-setting process.

Details

Pacific Accounting Review, vol. 33 no. 2
Type: Research Article
ISSN: 0114-0582

Keywords

Book part
Publication date: 12 December 2022

Sean M. Andre and Joy L. Embree

The typical accounting curriculum focuses on technical knowledge, which makes it challenging to devote time toward developing other important skills, such as examining how…

Abstract

The typical accounting curriculum focuses on technical knowledge, which makes it challenging to devote time toward developing other important skills, such as examining how accounting rules may impact a company’s financial statements. Recently, the accounting rules for lease transactions changed significantly, and this chapter provides an overview of an assignment used in an intermediate accounting course to engage students in a real-world application. Students had the opportunity to apply accounting rules to a publicly traded company, measure the significance of changes to generally accepted accounting principles, read financial disclosures, reinforce concepts of present value and ratio analysis, and engage in critical thinking. This type of assignment does not have to be limited to leases, and instructors could discuss any accounting rule by following a similar model, whether the rule itself is current or proposed. This would offer students context beyond textbook learning.

Details

Advances in Accounting Education: Teaching and Curriculum Innovations
Type: Book
ISBN: 978-1-80382-727-8

Keywords

Article
Publication date: 15 January 2020

Marcus Brooks, Stephanie Hairston and Charles Harter

The purpose of this paper is to examine the influence of manager ability on a firm’s choice of lease classification and the decision to capitalize vs lease firm-specific assets.

Abstract

Purpose

The purpose of this paper is to examine the influence of manager ability on a firm’s choice of lease classification and the decision to capitalize vs lease firm-specific assets.

Design/methodology/approach

The authors use regression analysis to examine the association between manager ability, lease classification and asset specificity.

Findings

Using 31,110 firm-year observations from 1998 to 2013, the authors find a significant positive relationship between manager ability and the decision to classify leases as operating. The authors also find that high-ability managers are more likely to capitalize, rather than lease, specialized firm-specific assets.

Research limitations/implications

The results imply that manager ability influences the choice of lease classification, which provides some support for the recent changes to lease accounting in Accounting Standard Update (ASU) 2016-02. The authors also show that asset specificity may serve as a mitigating factor in high-ability managers’ preference for operating leases, which implies that high-ability managers’ concerns with operational efficiency outweigh the benefits of off-balance sheet financing in their purchasing decisions if the asset in question is firm-specific.

Practical implications

The findings may be useful to boards of directors, investors and accounting academics concerned with the role that managerial ability plays in operational decision making and financial reporting.

Originality/value

The results imply that high-ability managers prefer off-balance sheet financing, which is unlikely to limit their access to external capital, but that this relationship is mitigated if the firm requires highly specialized assets.

Details

Journal of Applied Accounting Research, vol. 21 no. 1
Type: Research Article
ISSN: 0967-5426

Keywords

Content available
Book part
Publication date: 12 December 2022

Abstract

Details

Advances in Accounting Education: Teaching and Curriculum Innovations
Type: Book
ISBN: 978-1-80382-727-8

Book part
Publication date: 3 February 2022

Can Öztürk

This chapter focuses on the diversity of financial reporting frameworks in the airline industry considering past and present. While diversity of financial reporting frameworks…

Abstract

This chapter focuses on the diversity of financial reporting frameworks in the airline industry considering past and present. While diversity of financial reporting frameworks existed in the past, currently, the majority of listed and non-listed airlines, whose financial statements are publicly available, are inclined to adopt International Financial Reporting Standards (IFRS), leading toward uniformity in financial reporting frameworks because their country of incorporation or the stock exchange where they are listed either require or permit them to do so. Airlines operating in the United States prepare their financial statements under United States Generally Accepted Accounting Principles and some of Asian-Pacific countries still use their own national accounting standards in financial reporting. In addition, this research points out that the primary determinant of IFRS adoption in the airline industry is the fact that the majority of airlines are listed in national or foreign stock exchanges where IFRS adoption is required, but there are some company-specific determinants for listed and non-listed IFRS adopting airlines. Finally, this chapter also sets forth that there are jurisdictional versions of IFRS in the global context from the perspective of financial statements of airlines leading to some obstacles in understanding the financial reporting framework.

Details

Perspectives on International Financial Reporting and Auditing in the Airline Industry
Type: Book
ISBN: 978-1-78973-760-8

Keywords

Book part
Publication date: 14 December 2023

Natalie Tatiana Churyk, Martin Ndicu and Thomas C. Pearson

Creating a mindset for research, including the development of professional research skills and critical thinking, is of the utmost importance in preparing students for the…

Abstract

Creating a mindset for research, including the development of professional research skills and critical thinking, is of the utmost importance in preparing students for the business world. To help faculty with this mindset, we discuss novel approaches for incorporating professional research and interactions into the undergraduate classroom, although the recommendations can apply to the entire curriculum. We describe three scenarios where our recommendations might apply – research/financial, tax, and accounting information system courses. Using a professional accounting research course and a financial course as examples, we start out broadly discussing a practitioner-coauthored professional case study approach that is applicable to any course, at any level. We then present a capstone undergraduate tax research course followed by an introduction of a specific project in an accounting information systems course. We include suggested syllabi, projects, and assessment rubrics throughout the discussion.

Book part
Publication date: 11 October 2021

Alan Reinstein, Eileen Z. Taylor and Cathleen L. Miller

Materiality is a critical and challenging auditing concept. To help auditors improve their materiality judgments, the authors provide examples from Judaism, primarily due to its…

Abstract

Materiality is a critical and challenging auditing concept. To help auditors improve their materiality judgments, the authors provide examples from Judaism, primarily due to its longevity and the richness and variety of its stories. The authors show how Judaism interprets and applies materiality in many contexts. For each, the authors provide guidance on how auditors might apply these lessons to improve their materiality judgments. The authors examine five areas where Judaic examples can inform modern auditing including: (1) considering both quantitative and qualitative measures; (2) recognizing that small quantitative changes can lead to material qualitative effects; (3) understanding that ignoring small issues can become a slippery slope; (4) considering the importance of financial statement users’ needs in developing materiality criteria; and (5) prioritizing substance over form. In all examples, context is a critical factor to consider when applying materiality. These results should be of interest to auditors, financial statement users and others.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-83753-229-2

Keywords

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