A transparent transition? An investigation of firm disclosure regarding the expected impact of the new lease standard

Abstract

The Securities and Exchange Commission (SEC) requires firms to provide disclosures on the expected financial statement impact of newly issued accounting standards that have yet to be adopted. In this study, we explore the extent, nature, and timeliness of disclosures regarding the expected impact of the new lease standard in the transition period (2016–2018). We find that 62% of sample firms provide no firm‐specific disclosure regarding an expected increase in lease liabilities in the first year of the transition, which is unexpected given the clear balance sheet impact of the new lease standard. We investigate the determinants of timely disclosure and find a positive association with operating lease activity. Given concerns that firms will seek alternate vehicles for off‐balance‐sheet (OBS) financing under the new lease standard, we investigate changes in lease activity and disclosures for a sample of firms with extreme decreases in operating lease activity. We find a downward trend in operating lease activity around the passage of the new lease standard, but find few firms disclosing expected changes to their leasing activity. Our evidence suggests that information in early transition period disclosures, or lack thereof, may provide important signals for assessing lease liabilities and overall debt levels under the new lease standard.

Research on the influence of different tax policies on the business model of financial leasing companies under the new standards

“…This standard came into effect on January 1, 2019, and has made significant changes in the accounting treatment of lease contracts worldwide [2]. In the past, according to the old standards (IAS 17), lease contracts were divided into two categories: financial lease and operating lease, and these two types of contracts were treated differently in accounting [3]. According to the new lease criterion, most lease contracts are classified into a new way, which is called "direct confirmation of lease".…”