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Journal articles on the topic 'Operating leases'
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Dogan, Figen Gunes. "Non-cancellable Operating Leases and Operating Leverage." European Financial Management 22, no. 4 (July 30, 2015): 576–612. http://dx.doi.org/10.1111/eufm.12069.
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Paik, Daniel Gyung H., Joyce A. van der Laan Smith, Brandon Byunghwan Lee, and Sung Wook Yoon. "The Relation between Accounting Information in Debt Covenants and Operating Leases." Accounting Horizons 29, no. 4 (July 1, 2015): 969–96. http://dx.doi.org/10.2308/acch-51214.
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SYNOPSIS Proposed changes by the FASB and the IASB to lease accounting standards will substantially change the accounting for operating leases by requiring the capitalization of future lease payments. We consider the impact of these changes on firms' debt covenants by examining the frequency of income-statement- versus balance-sheet-based accounting ratios in debt covenants of firms in high and low Off Balance Sheet (OBS) lease industries. Based on debt contracts from the 1996–2009 period, our results provide evidence that lenders focus on balance sheet (income statement) ratios in designing debt covenants for borrowers in low (high) OBS lease industries. Further, the use of balance-sheet- (income-statement-) based covenants falls (rises) faster in high OBS lease industries than in low OBS lease industries as the use of OBS leasing increases. This evidence indicates that OBS operating leases influence lenders' use of accounting information in covenants, suggesting that creditors consider the impact of OBS leases when structuring debt agreements. These results also suggest that the proposed capitalization of OBS leases may not result in firms violating loan covenants but will make the balance sheet a more complete source of information for debt contracting by removing the need for constructive capitalization of OBS leases.
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Kusano, Masaki, Yoshihiro Sakuma, and Noriyuki Tsunogaya. "Economic impacts of capitalization of operating leases: Evidence from Japan." Corporate Ownership and Control 12, no. 4 (2015): 828–50. http://dx.doi.org/10.22495/cocv12i4csp4.
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The purpose of this study is to investigate the economic impacts of capitalization of operating leases in Japan. Specifically, this study estimates the ex-ante impacts of capitalization of operating leases by comparing pro-forma accounting numbers based on a proposed rule change with reported accounting numbers under an extant rule. Our findings are twofold. First, capitalization of operating leases has significant impacts on financial ratios, including the debt to equity ratio (DER) and the interest coverage ratio (ICR). Second, the impacts of capitalization of operating leases on these financial ratios are more likely to be large after the adoption of Statement No. 13, Accounting Standard for Lease Transactions. This study contributes to the literature on economic consequences of capitalizing leases and discussions of global convergence of accounting standards.
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Park, Younghee, and Kyunga Na. "The effects of listing status on a firm’s lease accounting: Evidence from South Korea." Gadjah Mada International Journal of Business 19, no. 1 (April 10, 2017): 77. http://dx.doi.org/10.22146/gamaijb.12848.
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This study examines how the listing status affects a firm’s choice of lease accounting, using 7,023 firm-year observations that record either an operating or a capital lease from 2001 to 2013 in Korea. We find that unlisted firms are more likely to opt for operating leases, and to have a higher ratio of operating leases than listed firms are. These results indicate that unlisted firms tend to prefer operating leases which can be used as a tool to avoid increasing debt levels and to benefit from off-balance sheet financing (or unrecorded liabilities), compared to listed firms. This study contributes to the current accounting literature as it is the first to provide empirical evidence regarding the impact of the listing status on a firm’s lease accounting.
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Caskey, Judson, and N. Bugra Ozel. "Reporting and Non-Reporting Incentives in Leasing." Accounting Review 94, no. 6 (January 1, 2019): 137–64. http://dx.doi.org/10.2308/accr-52367.
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ABSTRACT This study sheds light on the extent to which the use of operating leases depends on reporting incentives, such as understating liabilities, and non-reporting incentives that partly arise from the overlap between accounting, bankruptcy, and tax laws, such as increasing financing capacity and flexibility. We provide evidence that expanding financing capacity, accommodating volatile operations, and maximizing the present value of tax deductions are all important drivers of leasing decisions. Our findings suggest that capital markets and contracting-based reporting incentives have little influence on operating lease use. In particular, we find weak evidence that firms increase operating leases in advance of issuing equity, and no evidence that firms use operating leases to window-dress in advance of issuing debt, to avoid debt covenant violations, for compensation purposes, or to paint a better picture on an ongoing basis. These findings are consistent with reporting incentives playing a second-order role in leasing decisions. JEL Classifications: G32; G33; K34; M41.
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Bennett, Bruce K., and Michael E. Bradbury. "Capitalizing Non-cancelable Operating Leases." Journal of International Financial Management and Accounting 14, no. 2 (June 2003): 101–14. http://dx.doi.org/10.1111/1467-646x.00091.
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Altamuro, Jennifer, Rick Johnston, Shailendra Shail Pandit, and Haiwen Helen Zhang. "Operating Leases and Credit Assessments." Contemporary Accounting Research 31, no. 2 (January 14, 2014): 551–80. http://dx.doi.org/10.1111/1911-3846.12033.
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Bohušová, Hana. "Is Capitalization of Operating Lease Way to Increase of Comparability of Financial Statements Prepared in Accordance with IFRS and US GAAP?" Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis 63, no. 2 (2015): 507–14. http://dx.doi.org/10.11118/actaun201563020507.
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The paper is concerned with an evaluation of possibilities of companies using operating lease and prepared financial statements under IFRS or US GAAP comparison. The data of non-financial companies listed on the Prague Stock Exchange and reporting information on operating lease in accordance with IAS 17 are used. The study presents the impact of operating lease capitalization on companies’ financial statements and financial analysis ratios. The results show a negative impact of operating lease capitalization on financial analysis ratios. The study was motivated by a common effort of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to develop the common standard for Lease reporting. In 2013, a joint exposure dra of standard (ED2013/6) Leases was published. Under the new standard, it is required to capitalize all lease agreements over one year. The distinction between operating leases and finance leases should not exist anymore. The study was carried out to demonstrate the potential impact resulting from the proposed adoption of the new accounting standard concerning mandatory capitalization of all lease contracts.
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Beattie, Vivien, Alan Goodacre, and Sarah Thomson. "Operating leases and the assessment of lease–debt substitutability." Journal of Banking & Finance 24, no. 3 (March 2000): 427–70. http://dx.doi.org/10.1016/s0378-4266(99)00045-x.
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Y. Tai, Benjamin. "Constructive Capitalization of Operating Leases in the Hong Kong Fast-Food Industry." International Journal of Accounting and Financial Reporting 3, no. 1 (April 2, 2013): 128. http://dx.doi.org/10.5296/ijafr.v3i1.3270.
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The current study is undertaken to investigate the potential problems resulting from the proposed adoption of a new accounting standard concerning mandatory capitalization of all lease contracts. In 2010, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued a joint exposure draft (ED2010/9) on accounting for leases. Under the new standard, lessees are required to capitalize all lease contracts as assets and liabilities. The distinction between operating leases and capital (finance) leases will no longer exist. The long-standing off-balance sheet treatment of operating leases will be prohibited. After the adoption of the proposed standard, companies with significant operating leases are likely to experience an increase in assets, increase in liabilities, and decrease in equity, resulting in the deterioration of their return-on- assets and debt-to-equity ratios. This research examines two large fast-food restaurant chains based in Hong Kong; and through constructive capitalization, demonstrates how the companies’ key financial ratios are negatively impacted if the new standard is implemented. The results indicate that both the return-on-assets and debt-to-equity ratios of the two companies, under various discount rates assumptions, suffer serious deterioration when their operating leases are capitalized.
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Park, Younghee, and Kyunga Na. "The Effect of Lease Accounting on Credit Rating and Cost of Debt: Evidence from Firms in Korea." Social Sciences 7, no. 9 (September 7, 2018): 154. http://dx.doi.org/10.3390/socsci7090154.
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This study examines the effect of capital lease and operating lease options in accounting on credit ratings and the cost of debt using data for 13 years (2001 to 2013) on 6133 listed and unlisted domestic firms in Korea that recognize leases on financial statements. We use the Heckman two-stage model to control for sample selection bias from lease selection. The first stage is the probit regression in which the dependent variable is a dummy variable on the lease selection and the explanatory variables are factors known to affect lease selection. The second stage consists of the ordered probit regression model and the ordinary least square regression model where the dependent variables are credit rating and cost of debt, respectively. The results show that lease selection does not significantly affect corporate credit ratings—however, in terms of the cost of debt, enterprises that adopt operating leases spend considerably less than firms that engage in capital leases. Further analysis suggests that the results for credit ratings do not differ by listing status. However, the cost of debt for listed companies does not seem to differ by lease selection, while unlisted firms see a sharp decline in their cost of debt when they choose operating leases over capital leases.
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Paik, Daniel Gyung, Joyce Van Der Laan Smith, Brandon Byunghwan Lee, and Sung Wook Yoon. "Are leases substitutes or complements to debt? Insights from an analysis of debt covenants." Review of Accounting and Finance 19, no. 3 (June 20, 2020): 339–61. http://dx.doi.org/10.1108/raf-05-2019-0106.
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Purpose The purpose of this study is to investigate the relationship between off-balance-sheet (OBS) operating leases and long-term debt by analyzing firms’ debt risk profiles measured by the constraints on firms in the financial ratios in their debt covenants. Design/methodology/approach This study determines debt risk profiles using three measures: the ex ante probability of covenant violation (Demerjian and Owens, 2016), firms in violation of debt covenants and firms close to covenant violations. Findings High-risk firms according to all three measures, on average, have a significantly lower level of operating leases, indicating that these firms use OBS leases as a substitute for long-term debt. Interestingly, for firms operating in industries in which leases are widely available, firms with a high probability of covenant violation have a significantly higher level of operating leases, indicating that these firms use OBS leases as a complement to long-term debt. Further analysis indicates that lease financing is less costly than debt financing for these firms. Research limitations/implications Overall, evidence of this study indicates that firms facing financial constraints may attempt to lease more of their assets, but the availability of leasing is constrained by their debt covenant obligations and the strength of the leasing market in its industry. Originality/value This study identifies states in which risky firms may treat leases as either complements or substitutes for long-term debt, implying that the leasing decision relates to the availability of an active leasing market for a firm’s assets and the firm’s financial constraints. The findings of this study support recent research showing that debt and leases are complementary in the presence of counterparty risk providing insight into the paradoxical relationship identified in prior research between leases and long-term debt.
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Bianchi, Stefano. "Dialogue with standard setters." FINANCIAL REPORTING, no. 2 (December 2019): 141–50. http://dx.doi.org/10.3280/fr2019-002006.
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The new accounting standard IFRS 16 Leases is the result of a long process of review of the criteria for recognizing and evaluating the lease on the financial statements. The need to promote a revision of the accounting criteria on leasing has been felt by many players of the financial system. IASB, FASB, EFRAG, financial institutions, auditors and preparers have supported a debate on leasing over the years, which has underlined the im-portance of representing and assessing the operating leases in the financial statements with criteria similar to the criteria utilised for the financial leasing in order to improve the quality and comparability of the financial information. The new standard IFRS 16 Leases will be effective for annual reporting periods begin-ning on or after 1 January 2019 and it will bring significant changes in accounting require-ments for lease accounting, primarily for lessees, replacing the existing suite of standards and interpretations on leases as per follows: - IAS 17 Leases (IAS 17) - IFRIC 4 Determining whether an Arrangement contains a Lease (IFRIC 4) - SIC 15 Operating Leases - Incentives (SIC 15) - SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease (SIC 27). The purpose of the following review is to analyse some of the main issues arising from the adoption of IFRS 16 Leases supported by the results of a recent effect analysis.
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Trigeorgis, Lenos. "Evaluating leases with complex operating options." European Journal of Operational Research 91, no. 2 (June 1996): 315–29. http://dx.doi.org/10.1016/0377-2217(95)00288-x.
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Xu, Wei, Robyn Alexandra Davidson, and Chee Seng Cheong. "Converting financial statements: operating to capitalised leases." Pacific Accounting Review 29, no. 1 (February 6, 2017): 34–54. http://dx.doi.org/10.1108/par-01-2016-0003.
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Purpose The purpose of this paper is to examine how capitalising operating leases under IFRS 16/AASB 16 affects the financial statements and value relevance of financial information. In doing so, limitations of exiting methods are highlighted and improved upon. Design/methodology/approach Imhoff et al.’s (1991) constructive method for capitalising operating leases is improved upon and used to restate the financial statements of 165 S&P/ASX200 companies. The financial position, key ratios and value relevance are tested for significant differences. Findings The results provide evidence that capitalising operating leases affects financial statements and value relevance. Originality/value Imhoff et al.’s (1991) constructive method has been refined, providing an improved method for capitalising operating leases than the one that has been used in the past. From a practical perspective, this research provides evidence supporting the “right-of-use” method proposed by the IASB which will see previous off-balance-sheet leases recognised.
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Melekhina, Tatiana, Elena Sedova, and Irina Karpova. "Special issues of IFRS application in Russian organizations." E3S Web of Conferences 164 (2020): 09029. http://dx.doi.org/10.1051/e3sconf/202016409029.
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In modern conditions, Russian accounting is increasingly oriented to international standards. Accounting for leasing relations is also subject to changes that are associated with the transition of Russian accounting to international financial reporting standards (IFRS). In 2016, a new standard was approved for accounting for leases in public sector organizations - the SPS “Leases” (entered into force on January 1, 2018). For other organizations, on October 16, 2018, FAS 25 “Lease accounting” was approved. This standard introduces the type of asset - the right to lease, which represents a new format for accounting methodological documents. The purpose of the study is to consider the features of the application of FAS 25 “Lease accounting” based on the new IFRS 16 “Leases” in accounting for operating leases of Russian organizations. The authors consider the lease relations of economic entities of the Russian economy using the example of pharmacy organizations, in particular, the main aspects of FAS 25, the procedure for accounting for operating leases from the perspective of a lessee and lessor, features of accounting for sublease, leaseback, lease on special terms, as well as disclosure of lease information in accounting (financial) statements. The methodological basis of the study consisted of elements of the accounting method (system of accounts, double entry book-keeping, reporting) and tools of economic analysis (method of comparison, absolute and relative values, tabular and graphical representations of data, coefficient method). As a result of the study, an operating lease accounting mechanism was proposed, which reflects the specifics of pharmacy organizations.
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Jennings, Ross, and Ana Marques. "Amortized Cost for Operating Lease Assets." Accounting Horizons 27, no. 1 (August 1, 2012): 51–74. http://dx.doi.org/10.2308/acch-50278.
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SYNOPSIS: A proposed accounting standard issued jointly by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) would require firms to recognize many more lease assets than are currently required and to amortize those assets on a straight-line basis. A number of respondents to the exposure draft argue that the “front-loading” of lease expense resulting from straight-line amortization would not reflect the economics of the lease assets. This study compares straight-line amortization with the most-often cited alternative, present value amortization. First, we illustrate by example that under stylized conditions, present value amortization provides information that more faithfully represents the future cash flows of lease assets than straight-line amortization. Second, for a large subset of firms that are more likely to conform to the stylized conditions in our example, we find that investors value those firms as though the lease assets are capitalized and amortized on a present value basis. Finally, we find that financial ratio comparability is substantially increased when operating leases are constructively capitalized and amortized using straight-line amortization, and further increased when using present value amortization. Taken together, these results provide no evidence for favoring straight-line amortization over present value amortization as the default method for amortizing capitalized operating leases. Data Availability: Data used in this paper are publicly available.
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Bratten, Brian, Preeti Choudhary, and Katherine Schipper. "Evidence that Market Participants Assess Recognized and Disclosed Items Similarly when Reliability is Not an Issue." Accounting Review 88, no. 4 (February 1, 2013): 1179–210. http://dx.doi.org/10.2308/accr-50421.
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ABSTRACT We provide evidence that disclosed items are not processed differently from recognized items when the disclosures are salient, not based on management estimates, and amenable to simple techniques for imputing as-if recognized amounts. For a sample of firms with both capital and operating leases, we find that as-if recognized amounts for leases are generally reliable and that both recognized lease obligations and disclosed lease obligations are associated with proxies for costs of debt and equity. The magnitudes of these associations are not statistically different across accounting treatments, suggesting that market participants impound as-if recognized operating lease obligations and recognized capital lease obligations similarly into costs of capital. Conditioning on the reliability of as-if recognized operating lease obligations, we find a difference in the association between recognized versus as-if recognized lease obligations and proxies for the costs of debt and equity when the operating lease disclosures are less reliable. Data Availability: Data used are available from public sources identified in the study.
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Mey, Mattheus Theodorus. "The Value Relevance Of Straight-Lining Lease Expenses." International Business & Economics Research Journal (IBER) 15, no. 6 (November 2, 2016): 301–14. http://dx.doi.org/10.19030/iber.v15i6.9830.
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The International Accounting Standards Board envisions the global acceptance of International Financial Reporting Standards (IFRS). Despite attempting convergence with IFRS, some national accounting standard setters, such as in India allow for certain carve-outs in their own accounting standards so as to meet country-specific requirements for fair presentation. Indian Accounting Standards allow for operating leases with fixed inflationary linked escalations to be accounted for on an as-incurred basis in contrast to the existing requirement in IFRS to straight-line such leases. This study explores whether operating lease expenses with fixed inflationary linked escalations and accounted for on a straight-line basis provide incremental value relevance beyond the as-incurred basis.This study exploits an occurrence in South Africa, where listed companies that previously accounted for operating leases with fixed inflationary-linked escalation clauses on an as-incurred basis, were required to straight-line those leases. Using the Ohlson (1995) valuation model this empirical study investigates the incremental value relevance of the straight-line basis over the as-incurred basis.Results show a significant change in the association between property-related operating lease expenses and market value indicators after the effect of straight-lining is introduced. This suggests that the straight-line basis provide investors with more value relevant information than when accounting for the expense as-incurred.Findings from this study prompt national accounting setters that allow for operating leases with fixed inflationary linked escalations to be accounted for on an as-incurred basis to consider first whether the straight-line basis do not provide more relevant information. Limiting the choice of accounting treatment may enhance comparability of financial statements.
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Maglio, Roberto, Valerio Rapone, and Andrea Rey. "Capitalisation of operating lease and its impact on firm’s financial ratios: Evidence from Italian listed companies." Corporate Ownership and Control 15, no. 3-1 (2018): 152–62. http://dx.doi.org/10.22495/cocv15i3c1p1.
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Lease accounting will never be the same again. The endorsement of IFRS 16 on November 2017 sets out new rules for the recognition and measurement of the lease. The new standard removes the lessee’s distinction between operating and financial lease and it will have a substantial impact for companies have previously kept a large proportion of their financing off balance sheets. Under IAS 17 companies have exploited a financial accounting loophole by structuring lease transactions as operating leases, favouring opportunistic behaviours by managers and distorting the investors’ perception of the disclosure. IFRS 16 removes the so-called bright lines companies used to avoid capitalisation of leases and turns any attempt to hide lease liabilities off the balance sheet into a futile exercise to improve transparency of information. The purpose of this research is to analyse the potential impact of the new accounting rules on key financial ratios of Italian listed companies using a refined constructive capitalisation method. The results of the study show that the reflection of the operating leases on the balance sheet shall cause a significant increase in the assets and liabilities and for this reason, there shall be a significant effect on the main debt, liquidity and profitability ratios.
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Singh, Amrik. "Proposed Lease Accounting Changes." Journal of Hospitality & Tourism Research 36, no. 3 (November 19, 2010): 335–65. http://dx.doi.org/10.1177/1096348010388659.
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Regulators have proposed changes to the existing lease accounting rules that will require the capitalization of all operating leases as assets and liabilities. This study investigated the impact of operating lease capitalization on the financial statements and 11 financial ratios in restaurant and retail firms from 2006 to 2008. Significant absolute and relative differences were found across and within the two industries. All 11 financial ratios related to interest coverage, leverage, and profitability will change significantly and dramatically for both industry sectors. The findings indicate that retail firms will be affected to a greater extent than restaurant firms. Within the restaurant industry, small restaurant firms will face significantly higher debt-related ratios than medium or large restaurant firms. Reconciling previous research, this study found firm size to be an important factor in explaining operating lease usage with small firms likely to use more operating leases than large firms. Restaurant and retail firms should evaluate the impact of the proposed standard on debt agreements and executive compensation contracts and plan for operating under the new rules.
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Dhaliwal, Dan, Hye Seung (Grace) Lee, and Monica Neamtiu. "The Impact of Operating Leases on Firm Financial and Operating Risk." Journal of Accounting, Auditing & Finance 26, no. 2 (April 2011): 151–97. http://dx.doi.org/10.1177/0148558x11401210.
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De Villiers, Rikus R., and Sanlie L. Middelberg. "Determining The Impact Of Capitalising Long-Term Operating Leases On The Financial Ratios Of The Top 40 JSE-Listed Companies." International Business & Economics Research Journal (IBER) 12, no. 6 (May 24, 2013): 655. http://dx.doi.org/10.19030/iber.v12i6.7871.
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Operating leases forma great part of companies financing structures in todays economicenvironment. Some accounting standard-setters and other users of financialstatements are of the opinion that the current standard on accounting foroperating leases, IAS 17, does not provide sufficient guidelines on the disclosureof a companys leasing activities. The current accounting standard on leasesprovides companies with the opportunity to classify lease contracts intodifferent classes which leads to off-balance-sheet financing. This problem iscurrently being addressed by the IASB as they are in the process of developingan improved standard on leases.The main focus ofthis paper is to determine the impact of the improved accounting standard onthe financial statements and the resulting financial ratios of theJSETop40 companies when operating leases are accounted for ason-balance-sheet debt. The differences between the current IAS 17 and theExposure draft (ED/2010/9) are identified and the comparison indicatessignificant differences between these two approaches on accounting foroperating lease activities.The focus of the IASBin developing this exposure draft was to provide the users of financialstatements with a universal picture of the leasing activities that the companyis engaged in. The findings include that this objective is achieved as usersare not left uninformed about any of the financing activities that stakeholdersare exposed to if indeed a company is engaged in operating lease activities.The study also revealed that the capitalising of long-term operating leaseswill have a significant effect on the key financial ratios that stakeholdersuse to interpret a companys financial performance.
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Biondi, Yuri, Robert J. Bloomfield, Jonathan C. Glover, Karim Jamal, James A. Ohlson, Stephen H. Penman, Eiko Tsujiyama, and T. Jeffrey Wilks. "A Perspective on the Joint IASB/FASB Exposure Draft on Accounting for Leases." Accounting Horizons 25, no. 4 (December 1, 2011): 861–71. http://dx.doi.org/10.2308/acch-50048.
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SYNOPSIS The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) recently issued a joint exposure draft on accounting for leases. This exposure draft seeks to shift lease accounting from an “ownership” model to a “right-of-use” model. Under the current ownership model, leases can be reported on balance sheet (finance leases) if certain tests are met, or off balance sheet (operating leases) if those tests are not met. The new model seeks to report all leases on the balance sheet based on the present value of lease obligations without any bright line tests, and no sharp on or off the balance sheet classifications. We are sympathetic to the standard setters' concern that the current lease standard is being manipulated improperly by managers, resulting in large amounts of debt being reported off balance sheet. We provide a discussion of current lease accounting and the proposed exposure draft. We also comment on five key issues covered by the exposure draft: the definition of a lease, the initial measurement and eventual reassessment at fair values, the accounting for lessors, the impact of lease accounting on recognition and income measurement, and classification of lease accounting elements and their impact on accounting ratios. JEL Classifications: M40.
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Arimany, Nuria, M. Angels Fitó, Soledad Moya, and Neus Orgaz. "What lies behind compliance with operating leases disclosure?" Spanish Journal of Finance and Accounting / Revista Española de Financiación y Contabilidad 47, no. 4 (August 13, 2018): 485–506. http://dx.doi.org/10.1080/02102412.2018.1500797.
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Duke, Joanne C., and Su-Jane Hsieh. "Capturing the benefits of operating and synthetic leases." Journal of Corporate Accounting & Finance 18, no. 1 (2006): 45–52. http://dx.doi.org/10.1002/jcaf.20262.
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Sheraga, Carl A., and Paul Caster. "Distortions in the measurement of the efficiency of financial leverage strategies in the airline industry when operating leases are ignored." Journal of Transportation Management 25, no. 1 (April 1, 2014): 21–36. http://dx.doi.org/10.22237/jotm/1396310580.
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The Financial Accounting Standards Board and the International Accounting Standards Board have set forth a proposal requiring companies to capitalize operating leases and include them as assets and liabilities on their balance sheets. The proposal is motivated by the fact that current methods accounting for operating leases hide a great deal of off-book leverage and thus are misleading to investors. Such a change would have a significant impact on the U.S. airline industry where aircraft and property operating leases are quite prevalent. This study utilizes an in-depth strategic management perspective in examining how well U.S. airlines pursue optimization strategies with regard to the management of financial leverage in order to achieve desired targets of growth and profitability. Such benchmarking is accomplished by utilizing the DEA model suggested by Capobianco and Fernandes (2004). This study demonstrates the distortion inherent in inter-airline benchmarking when operating leases are not capitalized on the balance sheet.
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Collins, Denton L., William R. Pasewark, and Mark E. Riley. "Financial Reporting Outcomes under Rules-Based and Principles-Based Accounting Standards." Accounting Horizons 26, no. 4 (July 1, 2012): 681–705. http://dx.doi.org/10.2308/acch-50266.
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SYNOPSIS: This archival study addresses whether the presence or absence of “bright lines” in a lease accounting standard influences the classification of leases as capital or operating. To the best of our knowledge, our study is the first archival research to address the association between lease classification decisions and the use of U.S. GAAP and IFRS lease accounting standards. We examine firms' lease classification decisions using 2007–2009 data from a matched sample of members of the Fortune Global 500 that report under U.S. GAAP and IFRS. Consistent with experimental work by Agoglia et al. (2011), we find strong evidence that U.S. GAAP firms using a lease standard containing bright-line guidance (i.e., ASC 840) are more likely to classify leases as operating than IFRS firms adhering to a lease accounting standard that lacks the bright lines of the U.S. standard (i.e., IAS 17). Also consistent with Agoglia et al. (2011), we find little evidence of increased dispersion accompanying financial reporting under IFRS. In fact, we find some evidence suggesting the use of IFRS may actually lead to lower dispersion in reporting outcomes.
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Suzuki Tofanelo, Renan Eidy, Rodolfo Vieira Nunes, and George André Willrich Sales. "IFRS 16 - Impact on the Assets of the Major Airlines Operating in Brazil." International Journal of Economics and Finance 13, no. 9 (July 25, 2021): 1. http://dx.doi.org/10.5539/ijef.v13n9p1.
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The article aims to study the impacts that the adoption of IFRS 16 will have on the financial position, that is, what will be the impact on the total value of assets of airlines operating in the Brazilian market. It is evident that the new accounting of aircraft acquired through operating leases, an essential tool for any company in the sector, is fully in line with the essence of the operation. Therefore, the authors structured the methodology through a comparison of indicators between 3 companies in the Brazilian airline industry, together with data collection through accounting information obtained in explanatory notes on future payments of operating leases. The findings show that, with IFRS 16, there were significant changes in the indebtedness indicators of companies, due to the significant changes in the accounting of assets, affecting the capital structure and profitability of companies.
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Durocher, Sylvain. "Canadian Evidence on the Constructive Capitalization of Operating Leases*." Accounting Perspectives 7, no. 3 (August 2008): 227–56. http://dx.doi.org/10.1506/ap.7.3.2.
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Albert, Joseph, and Willard McIntosh. "Identifying Risk-Adjusted Indifference Rents for Alternative Operating Leases." Journal of Real Estate Research 4, no. 3 (January 1, 1989): 81–93. http://dx.doi.org/10.1080/10835547.1989.12090588.
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Abdulkarim, Umar Farouk, L. Mohammed, and A. Musa-Mubi. "Lease Finance in Nigeria: Current Status, Challenges and Future Prospects." Journal of Accounting Research, Organization and Economics 3, no. 2 (September 30, 2020): 172–81. http://dx.doi.org/10.24815/jaroe.v3i2.17687.
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Objective – The Leasing industry in Nigeria is witnessing increased demand for assets under a given prevalence of rising domestic costs of purchase, shortage of foreign exchange for imports as well as persistent depreciation of the Naira. The objective of this paper is to analyze the current state of lease financing in Nigeria, the prospects and challenges with a view to assess the capacity of the industry to continue to provide this form of finance. Design/methodology –The paper adopts an exploratory research design with references to publications, websites and research articles relevant to the subject matter. A number of relevant publications on leasing in Nigeria were duly explored. Results – Our findings show that, the volume of lease finance has consistently grown over the last 14 years (2005-2018). Finance leases volume totaled 1.68 trillion naira in 2018 alone. Banks as market participants in the Nigerian lease industry finance other non-bank lessors while the non-bank lessors account for about 80% of lease transactions mostly to Micro, Small and Medium Scale Enterprises (MSMEs). Funding remains a major challenge restricting provision of leases to general supporting equipment and constraining leases of specialized assets (big-ticket leases). Prospects for lease finance obtain in terms of rising popularity of operating leases with lessors and lessees, attributable to the inherent mitigation against default risk. There is also potential for a growing customer base beyond MSMEs, with the influx of patronage by listed corporate firms especially those in the healthcare and education sectors. We identified financing partnerships, development of sound corporate governance practices, hastened inauguration of the Equipment Leasing Registration Authority and increased sensitization of potential leasehold product consumers on the benefits of lease finance, as critical success factors for the lease industry in Nigeria.
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Kostolansky, John, Dora Altschuler, and Brian B. Stanko. "Financial Reporting Impact Of The Operating Lease Classification." Journal of Applied Business Research (JABR) 28, no. 6 (November 5, 2012): 1509. http://dx.doi.org/10.19030/jabr.v28i6.7405.
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The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are preparing to make changes to accounting standards for leasing that will have a significant impact on the financial statements of a large number of companies. The proposed standard will eliminate the operating lease classification, and if passed, companies using this classification will be required to report additional assets and liabilities on the balance sheet. This study estimates the impact of this change in accounting standards on the financial statements and several key financial ratios for an extensive sample of companies and industries from the Compustat North America database. It is important that users of financial statements understand and are prepared for these changes prior to implementation, particularly for industries in which operating leases are heavily utilized.
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Svoboda, Patrik. "Lease revenue reporting on the side of lessor in connection with transfer of right to use assets (RTU) to lessee." Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis 59, no. 7 (2011): 403–14. http://dx.doi.org/10.11118/actaun201159070403.
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The paper analyzed some of the approaches whose application is eligible for the recording of lease contracts on the side of lessor so that this recording display as closely as possible the essence of the lease relationship and at the same time it would be symmetrical to the way of recording on the side of lessee resulting not from value of transferred physical assets but from the evaluated right to use this asset. Impacts of individual variants of approaches into the income statement and statement of financial position are analyzed. It turns out that apparently it is not possible to apply only one approach (as it is in the case of lessee), without gross distortion of the financial position of the lessor. Some of the options of derecognition approach truly shows the situation, especially in long-term leases and leases where the risks and rewards associated with the lease are transferred to the lessee, for the other leases it is recommended sometimes to use underecognition property from the assets of the lessor during the lease period, but rather report a liability to leave to lessee to use (performance obligations approach). Compared with the current method of recording an operating lease, this approach without taking into account the cost of maintenance leads to another course of reporting profits (rise in the early stages against the growth in the final stages), but also brings a more fundamental problem, and it is overvaluation of lessor’s assets. In addition, it is possible to doubt about the correctness to report such liability as an unconditional liability. The approach is also not consistent with the IASB and the FASB project that is devoted to the recognition of revenues. The possible way, according to author’s opinion, might be regulation of existing model of reporting operating lease or derecognition approach.
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Boatsman, James, and Xiaobo Dong. "Equity Value Implications of Lease Accounting." Accounting Horizons 25, no. 1 (March 1, 2011): 1–16. http://dx.doi.org/10.2308/acch.2011.25.1.1.
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SYNOPSIS: The literature exhibits a long tradition of attention to the financial statement effects of accounting for operating leases. For the most part, that attention has focused on what are commonly viewed as errors in operating assets, deferred tax liabilities, debt, stockholders’ equity, and net income that, if not properly corrected, can lead to errors in financial statement analysis. There has been, at least, an implied effect of such financial statement analysis errors on estimated equity value. What has been lacking is a discussion of the precise nature of how the errors may, or may not, translate into errors in estimating equity value. We bring clarity to this matter through an example in which a nai¨ve reliance on financial statements unadjusted for the errors in accounting for operating leases has no effect on equity value estimated with three popular equity valuation models. We then discuss prior empirical evidence suggesting that the critical aspect of the example, namely the cost of equity capital is exogenously determined, is expected to be present in many practical applications. In short, lease accounting is often not a matter of consequence in the context of estimating equity value.
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Solanke, Muse Olayiwola, Bashiru Adisa Raji, and Taiwo Kareem Alli. "Vehicles leasing operations in Lagos state, Nigeria." Logistics & Sustainable Transport 10, no. 1 (June 1, 2019): 71–84. http://dx.doi.org/10.2478/jlst-2019-0006.
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Abstract Vehicle is an important element of transport; and its financing especially in road transport comes in 3 ways; outright purchase, hire purchase and lease. Of all these three methods of road transport financing, leasing has attracted little attention in Nigeria transport research. This study was carried out to examine the development, types and form, operating characteristics and problems of vehicle lease in Lagos State, Nigeria. Aggregate number of vehicle leasing companies in Nigeria from inception to 2018 was obtained from corporate affairs commission (CAC). Four prominent vehicle leasing companies: Cashlink Leasing Plc (CLP), NIKKY Taurus Ltd (NTL), C & I Leasing (CIL) and SAMTL Leasing Ltd (SLL) were purposively selected for the operating characteristics and challenges of the leasing companies. 298 structured questionnaires were administered to the staffs of the selected companies seeking the types and forms of lease and challenges encountered in the course of operation using stratified and simple random samplings techniques. Vehicle leasing started in Nigeria from 1986 with the likes of pine hill leasing, Cashlink leasing, VT leasing in Lagos. Within 1986 and 2018, it has spread to 23 different urban cities and the number has increased to 297 companies in 2018. Operating and finance leases exist in the industry with majority of 91.6% of the companies practice operating lease. The staff strength and fleet size level of the leasing companies varies overtime but positively significant to their operations. However, poor pricing of lease service, inadequate finance of vehicle, default in payment of rental charges and high cost of maintenance minimize leasing service efficiency and effectiveness. It is recommended that government should provide subvention for vehicles acquisition, face-off of racketing vehicles from cites and legislate policy to regulate operational activities (entry and exit) of the companies.
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Churyk, Natalie Tatiana, Alan Reinstein, and Gerald Harold Lander. "Leasing: reducing the game of hiding risk." Journal of Accounting & Organizational Change 11, no. 2 (June 1, 2015): 162–74. http://dx.doi.org/10.1108/jaoc-10-2012-0099.
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Purpose – This paper aims to examine the status and implications of the Financial Accounting Standards Board (FASB) and International Accounting Standards Board’s (IASB) forthcoming standard on leases. The proposal arose from concern that many lease obligations are unrecorded on the balance sheet and that current accounting for lease transactions does not represent fully the economics of many lease transactions. Design/methodology/approach – On September 20, 2012 and September 25, 2012, the Boards decided to account for some lease contracts using an approach similar to their proposed 2010 leases exposure draft (interest and depreciation) and to account for some leases using an approach that results in a straight-line lease expense. On May 13, 2013, the Boards decided to continue to account for some lease contracts on a straight-line basis, and others on an amortization basis separate from interest expense. Identification of the type of lease requires a two-step process at lease commencement, and all leases are recorded identically at inception. The subsequent measurement gives rise to differences. Some concerns are that an increase in assets and liabilities may result in debt covenant breaches that will require renegotiation and adjustment. Findings – While understanding that many financial users, preparers and auditors favor retaining the current and long-standing leasing standards, the FASB and IASB should recognize many unexpected consequences of its new proposals, including the changing of many long-held financial ratios and the resultant violations of many bank loan covenants. Research limitations/implications – The only limitation is that this manuscript is not based on primary empirical data. There are no implications for the study’s purpose is an update of a proposed FASB/IASB standard, an analysis of the empirical impact studies that have been done, a questionning of whether a new standard is really needed or that the current standard is not being implemented properly, and guidance for the implementation at transition and on-going for the proposed standard. This study gives a reader a compact update, implications, ramifications and guidance for preparation of a new standard if it is passed. Practical implications – The new rules will alter many key financial metrics that investors use to determine company valuations and credit agencies use to determine credit worthiness. Some items will improve, such as gross margin, cash flow from operations and earnings before interest and taxes. Reported interest coverage and return on assets will be lower under the new rules. Industries that make extensive use of operating leases such as transportation, banking, telecommunications, retail and real estate will be most affected. Social implications – In the best case scenario, the new standard would destroy approximately 190,000 US jobs. US gross domestic product (GDP) would be reduced by $27.5 billion annually. In the best case, the household earnings would be reduced by $7.8 billion annually. In the worst case, this decrease is $135.2 billion a year. The apparent liabilities of US publicly traded companies would increase by $1.5-$2 trillion, the equivalent gross state product of 20 states. Approximately $1.1 trillion of this would be attributable to balance sheet recognition of real estate operating leases, while the remainder would come from recognizing equipment and other leases as liabilities. Originality/value – The value of this research is the unique analysis of the proposed lease standard, and in looking at why the previous models did not work or did they? Is it the current requirements that are wrong or their implemenation? The reader is given a detailed overview of the proposed standard, its economic and social impacts, an update of the proposed standard, what companies must do now to get ready for the transition and on-going requirements, and a discussion of the tremendous opposition to any proposed changes in the current lease requirements from what they are.
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Veverková, Alžběta. "IFRS 16 and its Impacts on Aviation Industry." Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis 67, no. 5 (2019): 1369–77. http://dx.doi.org/10.11118/actaun201967051369.
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Current differences between the accounting models for a financial and an operating lease and their critics from the users of the financial statement forced the IASB issued a new Leases Standard, IFRS 16, which supersedes IAS 17 Leases and its related interpretations in January 2106. IFRS 16 will eliminate dual accounting model for lessees and it is assumed to have significant business implications, especially from lessee’s point of view. The paper focuses on quantification of the impact of IFRS 16 on selected financial statement items and financial analysis ratios of fifteen European airlines. The research is also concerned with comparison of the article outputs with the previous cases studies. The paper confirmed that lease capitalization under IFRS 16 will have a material impact on the reported numbers in the balance sheet and income statement and result in significant changes to return and leverage ratios.
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Kusano, Masaki. "Effect of capitalizing operating leases on credit ratings: Evidence from Japan." Journal of International Accounting, Auditing and Taxation 30 (March 2018): 45–56. http://dx.doi.org/10.1016/j.intaccaudtax.2017.12.008.
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Svoboda, Patrik, and Hana Bohušová. "Convergence of IFRS and US GAAP in the field of lease: the impact of new methodological approaches for operating lease reporting." Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis 60, no. 7 (2012): 345–58. http://dx.doi.org/10.11118/actaun201260070345.
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Since 2002 the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) has begun significantly cooperate in the creation of standards based on the same principals. This is a process of convergence. It is realized through a series of sub-projects aimed at short-term or long-term period. Revenue recognition and lease reporting projects represent priority areas of convergence. The issue of leases belongs to one of the areas in which there have been, after a relatively long time, criticized the very principles applied in international accounting standards. The result of the convergence activities should be the creation of such methodological approaches of reporting the lease contracts on the side of lessee and then lessor that would eliminate the main weaknesses of the current system of reporting based on the classification of lease contracts in connection with the execution or non execution of the transfer of risks and benefits associated with the lease to the lessee. The aim of this paper is to evaluate the impact of implementation of the newly proposed methodological approach for lease reporting in the field of operating leases into the financial statements that will be affected by this change of methodology (balance sheet, income statement). Subsequently, it is evaluated also the impact into selected indicators of financial analysis with a focus on indicators, in whose construction are used items of statements that are significantly affected by the change of the methodological approach.
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Brooks, Marcus, Stephanie Hairston, and Charles Harter. "Does manager ability influence the classification of lease arrangements?" Journal of Applied Accounting Research 21, no. 1 (December 23, 2019): 19–37. http://dx.doi.org/10.1108/jaar-02-2019-0028.
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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.
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Krawczak, Mateusz, and Renata Dyląg. "The impact of IFRS 16 on the financial position of selected companies from the WIG30 index." Zeszyty Teoretyczne Rachunkowości 2018, no. 97 (153) (May 10, 2018): 57–76. http://dx.doi.org/10.5604/01.3001.0012.0376.
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The main purpose of this article is to analyze the impact of changes in accounting for leases, defined in IFRS 16, on the financial situation of selected Polish entities listed on the Warsaw Stock Exchange. The following qualitative research methods were used to accomplish the goal: analysis of the literature of the subject and analysis of international reporting standards regarding accounting for leases. In the empirical part of the article, a simulation was carried out. It analyzed the impact of capitalization of operating lease on the selected parts of the balance sheet and changes in profitability of four entities listed on the Warsaw Stock Exchange. The results of empirical research indicate an increase in the value of assets and liabili- ties, a decline in the financial results, and an increase in profitability and debt ratios. The largest changes pertained to the equity and asset debt ratio, which confirms that the application of IFRS 16 will show corporate indebtedness, thus increasing investors' knowledge of the actual risk with which the company is burdened. The main value of this article is the originality of the pilot study carried out. To the best of the authors’ knowledge, these are the first practical measurements of the impact of capitalization of operating lease on the changes in profitability and indebtedness of the reporting entities.
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Caster, Paul, Carl A. Scheraga, and Michael J. Olynick. "The impact of lease accounting standards on airlines with operating leases: Implications for benchmarking and financial analysis." Journal of Transportation Management 28, no. 1 (July 1, 2018): 15–23. http://dx.doi.org/10.22237/jotm/1530403380.
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Duke, Joanne C., Su-Jane Hsieh, and Yuli Su. "Operating and synthetic leases: Exploiting financial benefits in the post-Enron era." Advances in Accounting 25, no. 1 (June 2009): 28–39. http://dx.doi.org/10.1016/j.adiac.2009.03.001.
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Li, Tongxia, Rahimie Karim, and Qaiser Munir. "The determinants of leasing decisions: an empirical analysis from Chinese listed SMEs." Managerial Finance 42, no. 8 (August 8, 2016): 763–80. http://dx.doi.org/10.1108/mf-06-2015-0166.
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Purpose – The purpose of this paper is to investigate the determinants of leasing decisions for a sample of China’s non-financial small and medium-sized enterprises (SMEs). Design/methodology/approach – Pooled ordinary least squares and Tobit models are used to analyze five years of data (2009-2013) on the sample units, to find the determinants of leasing decisions after controlling for industry. In order to assess the robust of the results, the authors further apply instrumental variables methods. Findings – The results suggest that CEO ownership, tax rate, financial distress potential, and firm size are positively related to the operating lease share, whereas debt ratio, profitability, and tangibility are negatively linked to the operating lease share. In contrast, capital lease share increases with debt ratio, profitability, firm size, and strong corporate governance; it decreases with CEO ownership and financial distress potential. Research limitations/implications – Using a small sample might not be enough capture industry effects. Future research may gain more insights using sufficient sample and considering the types of leases as well as leased assets. Practical implications – This study offers evidences to the policy-makers who may adopt the practices to promote the development of leasing market. Furthermore, these results provide important implications to lessors in making operating strategy decisions and to potential lessees in making financing decisions. Originality/value – To the authors’ limited knowledge, this is the first study on leasing relies on publicly traded Chinese SMEs. The results of this study enrich the literature on the determinants of leasing in several ways.
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Kilpatrick, Bob G., and Nancy L. Wilburn. "Convergence On A Global Accounting Standard For Leases Impacts Of The FASB/IASB Project On Lessee Financial Statements." International Business & Economics Research Journal (IBER) 10, no. 10 (September 27, 2011): 55. http://dx.doi.org/10.19030/iber.v10i10.5980.
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In this paper, we compare the current U.S. GAAP and IFRS lease accounting rules with the proposed rules under the joint FASB/IASB projects exposure draft as modified by their redeliberation decisions. Additionally, we discuss the potential financial statement impacts of the proposed changes and provide examples of the effects of constructive capitalization of operating leases on the financial statements and resulting ratios for matched pairs of Global Fortune 500 companies in industries, with each pair consisting of a company that follows U.S. GAAP versus one that follows IFRS.
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Lim, Steve C., Steven C. Mann, and Vassil T. Mihov. "Do operating leases expand credit capacity? Evidence from borrowing costs and credit ratings." Journal of Corporate Finance 42 (February 2017): 100–114. http://dx.doi.org/10.1016/j.jcorpfin.2016.10.015.
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Kostolansky, John, and Brian Stanko. "The Joint FASB/IASB Lease Project: Discussion And Industry Implications." Journal of Business & Economics Research (JBER) 9, no. 9 (August 19, 2011): 29. http://dx.doi.org/10.19030/jber.v9i9.5633.
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<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify; mso-pagination: none;" class="MsoNormal"><span style="color: black; font-size: 10pt; mso-themecolor: text1;"><span style="font-family: Times New Roman;">Over several decades, the Financial Accounting Standards Board and International Accounting Standards Board have enacted numerous changes to the controversial lease accounting rules. As currently prescribed, operating leases are treated as rental arrangements whereby the lessee does not record a liability - a situation generally referred to as off-balance sheet financing. In an attempt to increase transparency and comparability, the FASB and IASB will soon require all leases to be capitalized. This paper quantifies the impact of the new leasing standard on the financial statements and ratios of the firms and industries represented in the S&P 100 under a variety of discount rates. </span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>
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Bartlett, Richard H. "The Effect of Low Oil and Gas Prices on Freehold Oil and Gas Leases: A Problem of Interpretation." Alberta Law Review 29, no. 1 (January 1, 1991): 1. http://dx.doi.org/10.29173/alr693.
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Freehold oil and gas leases seek to reconcile the interests of the lessor and the lessee by providing in the habendum a clause for an initial primary term and "so long thereafter as there is production''. Both Canadian and United States jurisprudence indicate that leases will terminate if production is not' 'in paying quantities''. A test as to whether or not oil or gas is being produced in paying quantities is whether the value of the oil or gas produced exceeds the operating costs. If production fails this test then it must be considered whether a reasonably prudent operator would have continued to produce the well. It is suggested that a slight loss due to a temporary fall in price will not necessarily terminate a lease. But if the well was marginal before the fall in price, or if it extends over a substantial period of time, the holding of the lease by the lessee will most likely be construed as mere speculation. Further, most shut-in clauses do not assist the lessee. Vie clauses generally assume the existence of a well capable of production ' 'in paying quantities''. However, the actual wording must govern and some clauses provide for ' 'economical "or" 'unprofitable'' markets and thereby specifically address the lessee's dilemma.
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Hanert, Caireen E., and James R. Maclean. "Recent Judicial Developments of Interest to Energy Lawyers." Alberta Law Review 50, no. 2 (December 1, 2012): 437. http://dx.doi.org/10.29173/alr256.
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This article provides an overview of recent judicial developments of interest to energy lawyers. The authors summarize and provide commentary on recent Canadian case law in the areas of Aboriginal law, leases, joint operating agreements, surface rights, environmental law, contract law, taxation, privilege, employment law, conflict of laws, and limitations law.