Journal of Business Ethics

, Volume 80, Issue 1, pp 45–59 | Cite as

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

Article

Abstract

Under present accounting rules, lessees frequently structure contracts for leased assets, in situations where they enjoy benefits similar to outright ownership, in a way that keeps both the leased assets and related liabilities off their books. This method of accounting creates off-balance sheet financing and is called operating lease accounting. The paper debates the ethicality of intentionally structuring lease contracts to avoid disclosing leased asset and liability amounts and describes the “slippery slope” of rule-based accounting for synthetic leases and special purpose entities, that, in the author’s opinion, led to the accounting debacles at Enron and other companies. The ethical intent that is implicit in the Securities and Exchange Commission and Financial Accounting Standards Board regulations is discussed and suggestions for improving the ethicality of financial reporting are provided.

Keywords

accounting accounting ethics ethics and lease accounting ethics of financial reporting rule-based accounting rule-based ethics 

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Copyright information

© Springer Science+Business Media B.V. 2007

Authors and Affiliations

  1. 1.Vincent and Rose Lizzadro Professor of AccountingUniversity of Notre DameNotre DameU.S.A.

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