Transition Period of Mandated Accounting Changes — Timing of Adoption and Economic Consequences: The Case of SEAS No. 13

Samir M. El‐Gazzar and Bikki L. Jaggi

Journal of Business Finance & Accounting, 1997, vol. 24, issue 2, 293-307

Abstract: This study examines the economics of the timing of adoption of SFAS No. 13, Accounting for Leases by Lessees. We analyzed actual debt contracts of the affected firms to determine whether they were based on GAAP or Non‐GAAP accounting rules. We also examined what actions were taken by management to alleviate the negative effects of complying with SFAS No. 13. The results indicate that late adopters had a higher percentage of debt convenants based on GAAP measures, and that the late adopters would have experienced significant increases in closeness to default had they adopted SFAS No. 13 early. The results also indicate that by choosing late adoption, the firms were able to reduce the expected negative effects of the new accounting standard on financial statements.

Date: 1997
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