SYNOPSIS Accounting for corporate leasing activities has been examined and debated for more than 30 years. Currently both the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) are developing standards to modify financial reporting for operating leases, which are currently reported off-balance sheet. In light of these proposals, we examine existing literature to better anticipate possible effects of any changes. Namely, we review existing studies to understand why firms engage in operating leases and how information about these arrangements impacts users. First, we review studies directly examining leases. As that review reports, some studies show that companies engage in off-balance sheet leasing at least in part to manage financial statement presentation. Other studies, however, suggest that firms utilize operating leases to manage costs and preserve capital. In general, the research reports that lenders, credit rating agencies, and other capital market participants sufficiently understand off-balance sheet leases and consider them in their decision making. Second, we provide commentary on one of the current proposals' more debated areas and a current point of FASB and IASB divergence: classification of expenses associated with operating leases. While the IASB proposes disaggregating interest and amortization elements, the FASB proposes reporting a single, combined lease expense. However, very little research explicitly addresses expenses associated with operating leases. Existing studies do, however, suggest that information disaggregation, particularly with regard to operating and financing activities, is important. Our review may be useful to regulators as the reporting standards for operating leases are debated.
Single audits provide critical accountability for federal grant awards. Our study comprehensively examines differences in single audit findings (related to both financial statements and major program compliance) by auditee type (state/local government and nonprofit) and across varying levels of auditor expertise. In a sample of 24,144 audit engagements over the period 2004 through 2010, nonprofit auditees report fewer internal control deficiencies than government auditees, but more instances of questioned costs related to major programs. Audits conducted by firms with lower single audit expertise are associated with fewer financial statement and major program compliance findings. The results by auditee type and auditor expertise are important to discussions of single audit quality.
Despite the importance of audit and accounting services in nonprofit organizations, few studies have examined determinants of these monitoring costs in this setting. This study provides large sample evidence (n ¼ 32,283 nonprofit entity-years) that reliance on external resources in the form of government grants is associated with higher monitoring costs, and that this effect is increased for large nonprofit organizations. In contrast, reliance on direct contributions, which are more likely to comprise smaller amounts from a more diverse group of resource providers, is associated with lower monitoring costs. We also find that, for larger nonprofits, reliance on internal resources (e.g., investment income) is associated with lower monitoring costs. These results are consistent with the tenets of resource dependence theory, i.e., reliance on certain external support that is hard to replace results in increased monitoring costs, and reliance on internal resources can reduce monitoring costs. These results demonstrate the implications of resource dependence on monitoring and offer practical benefit from the predictive models.
This study examines the association between jurisdictions' CPA exam educational requirements and exam pass rates, scores, and number of candidates from 2006 to 2013. More specifically, we examine provisional candidacy to sit for the CPA exam. Provisional status allows a candidate to sit for the CPA exam prior to obtaining the required number of hours or graduate degree. Our results indicate that while 150-hour exam jurisdictions outperform 120-hour jurisdictions, provisional jurisdictions outperform both 150- and 120-hour jurisdictions for pass rates and average scores. We also find that the number of candidates sitting for the exam is significantly lower for provisional and 150-hour jurisdictions than for 120-hour jurisdictions. Our study contributes to the literature by considering the potential benefits of sitting in provisional jurisdictions and is likely to be of interest to accounting educators, state boards, and public accounting firms. Data Availability: Data are publicly available from sources indicated in the text.
Government financial reports are often released six months or more after the reporting government's fiscal year-end, and this lag limits usefulness. In a sample of 1,693 Illinois local governments, we examine the determinants of total reporting lag, bifurcating it into two distinct components: (1) audit report lag (ARL), i.e., fiscal year-end to the audit report date, and (2) regulatory reporting lag (RRL), i.e., the audit report date to submission with the State of Illinois Office of the Comptroller. These governments are required to provide regulatory filings in both PDF format and as digital financial information within 180 days of fiscal year-end. We find that prior year ARL is the biggest determinant of current year ARL and that audit firm expertise is associated with shorter ARL. In contrast, audit firm expertise is associated with longer RRL, as is slack, i.e., the number of days left in the 180-day reporting window, suggesting that balancing the demands of multiple government clients is a factor in filing time. Given recent developments in government reporting taxonomies, XBRL is well positioned as a tool to eliminate the RRL by automating the post-audit process, resulting in the timelier release of information in a consumable format to external users.
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