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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.

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

Case study/exercise/assignment.

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.

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.

Purpose – This article examines the operating lease cost stickiness characteristics exhibited by retail firms.

Methodology/approach – Anderson, Banker, and Janakiraman (2003) laid important groundwork for the study of asymmetric cost behavior or cost stickiness. The authors found that a firm’s selling, general, and administrative costs (SG&A) costs increase more with a sales increase than those expenses decrease with an equivalent sales decline. Their findings provided avenues for many studies with differing focal variables; however, extant research has not explored the degree of cost stickiness associated with operating lease expenses. Recognizing the nature and magnitude of operating leases and the competitive and changing environment for retailers, this study adapts Anderson et al.’s (2003) model to provide insights into operating lease stickiness. The study uses archival financial data from 1997 through 2016 for specialty retail firms in testing the lease cost stickiness hypotheses.

Findings – The results of this study supported the hypotheses that operating lease expenses exhibit stickiness behavior and are relatively stickier than future lease commitments for retail firms.

Originality/value – By focusing on retail firms and related lease expenses, this study provides insights into the increasingly competitive retailer environment. This article’s findings will enhance understanding of how specialty retail firms’ managers react to reduced revenues. Finally, given recent authoritative pronouncements affecting accounting for leases and the significance of leasing transactions, research providing insights into cost behavior and managerial actions stands to make an important contribution to literature and practice.

This chapter focuses on the IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases in the airline industry considering the case of Air France – KLM (AF-KLM). This airline timely adopted IFRS 15 and early adopted IFRS 16 for the year 2018 and restated its 2017 financial statements using the full retrospective method so that the 2018 financial statements of the airline provide comparative financial information during the transition phase from IAS 18 to IFRS 15 as well as from IAS 17 to IFRS 16. In the first part of the chapter, liquidity, solvency, and profitability ratios along with cash flow ratios were used to analyze the cumulative effect of IFRS 15 and IFRS 16 using 2017 and restated 2017 financial statements. In this context, results indicate that the liquidity ratios decreased, and the solvency ratios increased in general. In addition, the cumulative effect of IFRS 15 and IFRS 16 created an upward change in general on profitability ratios based on the several performance parameters that should be considered during the transition from IAS 18 to IFRS 15 and from IAS 17 to IFRS 16. Overall, IFRS 15 has minor effect and IFRS 16 has major effect on the financial statements of AF-KLM. In the second part of the chapter, the compliance level of the mandatory disclosures requirements of the airline was examined from the lessee standpoint and the research pointed out that the airline fully complied with these disclosures at its first adoption of IFRS 16 and provided some voluntary disclosures as well.

This chapter explores the link between virtue and representational faithfulness in making judgments in a principles-based environment. The motivation for the chapter is the impending adoption of International Financial Reporting Standards (IFRS) in the United States and its principles-based approach to accounting. Even in a rules-based system, there are principles that provide a foundation for making decisions about the selection and implementation of accounting standards, financial statement presentation, estimates, and the sufficiency of evidence. A model is presented that reflects these judgments informed by virtue considerations that support substance over form decisions and a true and fair view. Implications for accounting education are discussed including the readiness of faculty to incorporate IFRS into the curriculum.

This chapter investigates whether jurors, in their attribution of auditor responsibility, may be inappropriately influenced by the client use of a principles-based accounting standard, even if this standard is properly applied. Following prior research on questionable auditor conduct and its subsequent evaluation by juries, which is often subject to hindsight and outcome bias, this chapter examines whether an auditor's legal liability increases when its client uses principles-based accounting standards, by conducting a controlled experiment with 124 qualified jurors serving a county circuit court. Each juror is properly instructed and provided one of four different cases, obtained by manipulating two levels of an accounting standard, one principles-based and one rules-based, and by manipulating two subsequent client-loss outcomes, one moderately negative and one severely negative. This study finds jurors evaluate auditors more negatively if auditors have relied on a principles-based accounting standard. This attribution is influenced by hindsight bias and the perceived risk-taking responsibility of the investor, but independent of the client-loss outcome severity. These results contribute to the discussion of adopting or converting to the principles-based International Financial Reporting Standards (IFRS) by the United States.