An analysis of lease accounting and disclosures by Australian firms subsequent to AAS17

Abstract

This paper analyses Australian lessee firms' discretionary finance lease accounting policy choice during the first year of the transitional provisions permitted by AAS 17. Economic factors are examined in an attempt to explain managements' choice of a lease capitalization or footnote disclosure only accounting method. Contrary to U.S. evidence, the empirical results are mixed. The empirical evidence indicates that leverage, interest coverage, increase in profits, and increase in interest coverage influence managements' choice of lease accounting method. However, profits, increase in leverage, size, industry, and audit firm do not appear to influence the that managers make accounting policy choice. These results indicate near term profits and decisions aimed at maximising capitalization.