Effects of Recognition versus Disclosure of Finance Leases on Audit Fees and Costs: Evidence from Japan

Masaki Kusano and Yoshihiro Sakuma

Discussion papers from Graduate School of Economics , Kyoto University

Abstract: This study examines the effects of recognized versus disclosed lease arrangements in the Japanese audit market. In particular, we investigate whether the relations between recognized versus disclosed finance leases and audit fees and costs are different and whether these relations differ between audit fees and costs. We find that recognized finance leases are associated with audit fees while disclosed finance leases are not. Moreover, the associations between recognized versus disclosed finance leases and audit fees are substantially different. However, neither recognized nor disclosed finance leases are associated with audit costs, and recognized and disclosed finance leases have similar associations with audit costs. These results suggest that audit effort does not differ between recognized and disclosed finance leases and that a risk premium is charged to recognized finance leases relative to disclosed finance leases. Our results are not consistent with the view that investors’ differential treatments between recognized and disclosed items are due to the reliability of accounting information. This study makes contributions to the accounting literature on recognition versus disclosure and has implications for the global convergence of accounting standards.

Keywords: Recognition versus Disclosure; Finance Leases; Audit Fees; Audit Costs (search for similar items in EconPapers)
JEL-codes: M41 M42 M48 (search for similar items in EconPapers)
Pages: 42
Date: 2018-08
New Economics Papers: this item is included in nep-acc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Effects of recognition versus disclosure of finance leases on audit fees and costs: Evidence from Japan (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:kue:epaper:e-18-004

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