Ethical Issues in Financial Reporting: Is Intentional Structuring of Lease Contracts to Avoid Capitalization Unethical?

Frecka, Thomas J.

doi:10.1007/s10551-007-9436-y

Cited by 23 publications

(8 citation statements)

References 10 publications

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“…Managers may have an ethical responsibility to speak in the interests of investors (Yuthas et al 2002), and the financial market values ethical and transparent corporate disclosures (Jo and Kim 2008). The business ethics literature views the accuracy and transparency of financial information as fundamental to ethical financial reporting (Frecka 2008;Holley 1998;Lee 2017;Ruppel and Harrington 2000;Whitener et al 1998). Thus, managers may engage in ethical behavior to gain a reputation for behaving ethically and honestly (Jones 1995).…”

Section: Hypotheses Developmentmentioning

confidence: 99%

“…Once the stockpile of bad news exceeds a certain threshold, stock price crashes occur, resulting in great losses to investors (Jin and Myers 2006). On the other hand, due to reputation concerns, managers may provide truthful information during conference calls instead of unethically manipulating call tone (e.g., Frecka 2008;Lee 2017;Yuthas et al 2002). Moreover, the spontaneous and interactive nature of conference calls limits managers' ability to unethically manipulate disclosure tone.…”

Section: Introductionmentioning

confidence: 99%

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The Information Role of Earnings Conference Call Tone: Evidence from Stock Price Crash Risk

Zhang

2019

J Bus Ethics

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This paper investigates whether and how the disclosure tone of earnings conference calls predicts future stock price crash risk. Using US public firms' conference call transcripts from 2010 to 2015, we find that firms with less optimistic tone of year-end conference calls experience higher stock price crash risk in the following year. Additional analyses reveal that the predictive power of tone is more pronounced among firms with better information environment and lower managerial equity incentives, suggesting that extrinsic motivations for truthful disclosure partially explain the predictive power of conference call tone. Our results shed light on the long-term information role of conference call tone by exploring the setting of extreme future downside risk, when managers have conflicting incentives either to unethically manipulate disclosure tone to hide bad news or to engage in ethical and truthful communication.

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Section: Hypotheses Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Information Role of Earnings Conference Call Tone: Evidence from Stock Price Crash Risk

Zhang

2019

J Bus Ethics

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“…52% of the questioned auditors believe that the participation to continuing professional development courses has a contribution to the enhancement of professional judgement, while the remaining 48% sustains that the real case scenarios bring added value. However, other studies (Salter and Niswander, 1995;Frecka, 2008) have demonstrated that the knowledge acquired in the course of university and post-university training, as well as professional development courses organized by companies contribute to the development of professional judgement.…”

Section: Q1 Does the Participation To Continuing Professional Development Courses Have A Contribution To The Enhancement Of Professional mentioning

confidence: 98%

The importance of professional judgement applied in the context of the International Financial Reporting Standards

IVAN¹

2016

AUDITF

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Guidance has always been welcome in terms of applying professional judgement in the context of the principles-based accounting standards -International Financial Reporting Standards. This fact is the result of the complexity and diversity of some situations, which might give rise to difficulties in terms of choosing the appropriate accounting policies and methods (depreciation, inventory valuation on hand at the end of an accounting period, the recognition of revenues and expenses from a construction contract, accounting for lease contracts by the proper determination of the type of lease: financing or operating), and respectively the need to verify if the criteria set by the principles-based accounting standards are met. This "freedom" of choice and disclosure might create problems in terms of accounting information quality. The possibility to select accounting methods based on the Standards' provisions is meant to generate a true and fair view of the company's financial position and financial performance.In these cases it is recommended to use professional judgement in order to reach a conclusion which is in accordance with the accounting principles and is not enforced by any accounting rules, since the exercise of individual professional judgement is preferred against the "pure" compliance with prescriptive legal requirements.

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“…Criticisms on the ethicality of intentionally structuring lease contracts to avoid disclosing leased asset and liability amounts are voiced frequently and Frecka (2008) contends that the "slippery slope" of rule-based accounting for synthetic leases and special purpose entities, led to the accounting debacles at Enron and other companies. Research has shown that companies complying with a US standard that contains bright linerules are more likely to classify leases as operating than companies that use IFRS and aprinciple based standard (Collins et al 2012).…”

Section: Literature Reviewmentioning

confidence: 99%

Accounting for Leases and the Failure of Convergence

Hussey¹

2017

AJBE

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The Financial Accounting Standards Board (FASB) in the U.S. and the International Financial Reporting Standards(IASB) commenced a work programme towards convergence and the leasing project was added to their agenda in July 2006. The aim of the project was to develop a single approach to lease accounting that would ensure that all assets and liabilities arising under lease contracts would be recognised in the statement of financial position.

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Ethical Issues in Financial Reporting: Is Intentional Structuring of Lease Contracts to Avoid Capitalization Unethical?

Abstract: accounting, accounting ethics, ethics and lease accounting, ethics of financial reporting, rule-based accounting, rule-based ethics,

Cited by 23 publications

References 10 publications

The Information Role of Earnings Conference Call Tone: Evidence from Stock Price Crash Risk

The Information Role of Earnings Conference Call Tone: Evidence from Stock Price Crash Risk

The importance of professional judgement applied in the context of the International Financial Reporting Standards

Accounting for Leases and the Failure of Convergence

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