This study investigates lease reporting practices of major Australian firms since the introduction of accounting regulations which require specific disclosures and reporting of leases (AAS 17 and ASRB 1008). The focus of the study is on identifying how firms' altered their finance leasing, operating leasing, and debt financing polices in response to the disclosure requirements of the standards. The study also focuses on types of firm and contractual characteristics which may have contributed to those responses. In contrast to previous studies on lease disclosure regulation and other accounting policy choice studies, this study considers the effects over a longer period (1988-1992) to more comprehensively capture the differential impact of regulation.
The findings of the study highlight that firms reacted to the capitalisation requirements of lease reporting standards by substituting finance leases and debt with operating leases. A similar, but delayed response to the lease reporting standards is evident for firms that were required to consolidate new subsidiaries under the provisions of the consolidation standard AASB 1024. The study also confirms that certain financial characteristics, leverage and profitability, are associated with lease intensity and lease reporting practices.
These results highlight that differences in firm circumstances and contractual arrangements appear to be associated with variations in responses to the accounting rule change, implying that the costs of adjusting to the change was not uniformly borne by all firms. Finally, the results suggest that the "substance over form" intentions of the accounting standard setters have been largely ignored. The implications for accounting standard setters is that further attempts to regulate lease disclosure will be costly to specific firms. In the event of the implementation of more onerous lease reporting requirements, it is anticipated that those firms will continue to seek means of avoiding the effects of regulation, possibly using similar methods to those identified in this study.