The path of lease resistance: How changes to lease accounting treatment may impact your business

Gross, Andrew D.; Huston, George Ryan; Huston, Janet M.

doi:10.1016/j.bushor.2014.06.006

Cited by 2 publications

(4 citation statements)

References 2 publications

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“…This is consistent with evidence found by Wilkins and Zimmer (1983) and Durocher and Fortin (2009) which shows that the capitalization of operating leases improves bankers' ability to evaluate lessees' long-term commitments. Furthermore, our results are congruent with Gross et al (2014) who indicate that changes in accounting standards change the way that key financial information is used by investors and lenders, impacting investment decisions.…”

Section: Discussion Of the Resultssupporting

confidence: 90%

“…Our research shows that if operating lease information is presented in accordance with international accounting standard IFRS 16, it has a significant positive influence on the quality of decision-making by the professional users (investors, analysts, etc.) and validates existing theory on this subject, as provided by Wilkins and Zimmer (1983), Durocher and Fortin (2009), Gross et al (2014), Lin et al (2013), Spencer and Webb (2015) and Paik et al (2015).…”

Section: Discussionsupporting

confidence: 86%

“…They conclude that the new rules could make it more difficult for some firms to raise capital unless they disclose the minimum obligation period and the renewal period separately. Gross, Huston, and Huston (2014) argue that the proposed rule changes will affect debt covenants, compensation contracts and EBITDA calculations. Furthermore, a complete revision of historical figures and ratios is needed to ensure the availability of comparative figures.…”

Section: Introductionmentioning

confidence: 99%

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Leases on balance, a level playing field?

Kints

Spoor

2019

Advances in Accounting

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Due to changes in lease agreements accounting standards, firms will soon have to recognize operating lease obligations that historically have been kept off-balance sheets (OBS). Research indicates that this change will have substantial effects on the presentation of the financial position and results of firms involved. It is also expected that this will affect decision-making by stakeholders such as boards, managers, bankers and financial analysts. Although it is assumed that these professionals consider all relevant information, it is also known that the smaller the chance of relevant information being overlooked, the better the decision-making. In this study we examine whether IFRS 16 has that positive effect. The results from this research suggest that the accounting treatment under IFRS 16 contributes to the quality but not necessarily to the ease of making investment financing decisions. that determining lease expenses based on capital leases is more economical for market participants. Although research (Graham & King, 2013) indicates that some leased assets should be capitalized at the assets' purchase price (whole asset value), current practice is that leased assets are capitalized at the present value of future minimum lease payments (right-of-use asset value). From January 1, 2019, companies will be compelled to comply with the introduction of IFRS 16 to capitalize their operating lease liabilities. This change may play an important role in the quality of investment financing decision-making based on that information. The International Accounting Standards Board (IASB) is fully convinced of the importance of this role, as evidenced by their decision to adapt the prevailing International Financial Reporting Standards. Hans Hoogervorst, IASBchairman, explains the new requirements: "These new accounting requirements bring lease accounting into the 21 st century, ending the guesswork involved when calculating a company's often-substantial lease obligations. The new standard will provide much-needed transparency on companies' lease assets and liabilities, meaning that off-balance sheet lease financing will no longer be lurking in the shadows. It will also improve comparability between companies that lease and those that borrow to buy." According to earlier research by Cornaggia et al. (2013), Singh (2012) and Wicker and Young (2011), it can be expected that the change in rules will influence the evaluation of financial ratios of leasing firms. Similarly, Hales, Venkataraman, and Wilks (2012) argue

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Section: Discussion Of the Resultssupporting

confidence: 90%

Section: Discussionsupporting

confidence: 86%

Section: Introductionmentioning

confidence: 99%

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Leases on balance, a level playing field?

Kints

Spoor

2019

Advances in Accounting

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“…Accounting research on leases has been divided into five lines (Morales-Diaz et al 2018): economic consequences of accounting standards, determinant of leases, value relevance, leases' valuation, and the impact of leases on accounting ratios. Lots of scientific articles have instead focused on the effects of IFRS 16 on financial statements and ratios and the impacts of the capitalization of the unrecorded leases, among the most recent (Gross et al 2014); (Bohušováa 2015); (Ericson and Skarphagen 2015); (Nunung 2015); (Wong and Joshi 2015};(Hsieh et al 2015); (Öztürk 2016); (Sarı et al 2016); (Sacarin 2017); (Arnold and Tahtah 2017); (Moralez-Diaz 2018). Among other aspects, some articles have dealt with the effect on credit risk, among the most recent (Altamuro et al 2014); (Masaki 2017); (Lim 2017); lease term (Bohušováa et al 2014); and macroeconomics or industry competitiveness aspects of lease (Andrikopoulos et al, 2014); (Vakhitov Damir et al 2014).…”

Section: Literature Reviewmentioning

confidence: 99%

Aircraft Wet Leases: Accounting Dissonance with Competitive Strategy and Travelers’ Perspectives

Bellandi¹

2018

IJBM

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Under IFRS 16 and Topic 842 a lessee’s right to control the use an aircraft in a wet lease is an asset. On the other hand, contract analysis sees a wet lease as an opportunistic, external, temporary, competitive tool for flight flexibility and tactic cost advantage. Finally, travelers may be worried of safety and service quality or disruption in a wet lease, as the flight is not operated by their airline. This article addresses the accounting for aircraft wet leases as an exemplar case of a lease with substantial services, to discover that there is dissonance between the economic views behind accounting, business model and competitive strategy, and user service perspective. After a thorough analysis of IFRS 16 and Topic 842 applied to wet leases for the first time in a public study, a review of disclosures in financial statements of 59 sampled airlines confirms a clear contrast between the competitive analysis, traveler’s perspective and the accounting view. Such a dystonia is supposed to reflect the view of investors and creditors, which the IASB’s and FASB’s Conceptual Frameworks denote as primary users of financial statements, as opposed to other members of the public, including customers. This results in a failure to give enough space to the indirect effects of such alternative views on customers’ demand and revenue, hence company’s prospects for future net cash inflows, which according to the Conceptual Framework is the main driver of investors and creditors decision making. Highlights Contract analysis is provided on wet leases as a business model competitive tool. Analysis under IFRS 16 and Topic 842 and IAS 17/IFRIC 4 and Topic 840 is provided. Above views are compared with travelers’ concerns about safety and service quality. Airline financial statements disclosures on these three views are analyzed. Views are traced to primary versus other users’ conflict in the Conceptual Framework.

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The path of lease resistance: How changes to lease accounting treatment may impact your business

Cited by 2 publications

References 2 publications

Leases on balance, a level playing field?

Leases on balance, a level playing field?

Aircraft Wet Leases: Accounting Dissonance with Competitive Strategy and Travelers’ Perspectives

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