The effect of academic literature on accounting regulation: evidence from leases in Germany

ABSTRACT

This study explores the history of lease accounting in Germany and examines how the industry managed to maintain the favourable off-balance sheet treatment, despite regulatory opposition. Drawing upon expert interviews as well as bibliographic analysis, this study shows that the established ties to state actors, combined with the purposeful involvement in the scientific discourse, enabled the leasing industry to fend off regulatory challenges in the areas of accounting, civil law, and supervision. Combining the concept of accounting constellations with elements of structuration theory, field theory, and socio-legal studies, the study demonstrates how academic literature affects accounting regulation.

KEYWORDS:

• Accounting literature
• lease accounting
• lobbying
• accounting constellations

Acknowledgements

I appreciate the comments received from the accounting department of the ESSEC Business School in Cergy-Pointoise at its Brown Bag Seminar in October 2017. In particular, I am very grateful to my host, Carlos Ramirez, for his very insightful comments. Additionally, I remain deeply obliged to Matthias Thiemann and Michael Hommel for their comments and want to thank Edin Ibrocevic for his support with the data set. Furthermore, I extend my gratitude to Cornelia Woll and to the members of the accounting department of the Goethe University Frankfurt brown bag seminar in October 2018 for their feedback. Finally, I gratefully acknowledge research support from the Center of Excellence SAFE, funded by the State of Hessen initiative for research LOEWE.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 In a simple lease contract, the lessee receives an asset from the lessor while the former pays a fee to the latter for a certain period (see Hommel 1992 for a detailed analysis of the specific characteristics of German leases). As the lessor typically recognises the leased asset as well as the occurring liability, leases provide an off-balance sheet effect for the lessee. Hence, this accounting treatment affects important financial ratios, such as the debt-to-equity ratio, in a positive way.

2 The legal basis of accounting regulation in Germany is the commercial code and tax law. However, both are also linked to the civil law. The Ministry of Justice and the German Parliament are the responsible institutions for the issuance of accounting rules, accompanied by a standard setter since 1998.

3 In 2017, lease contracts account for 200 billion euros in Germany and leasing represents the most important source of external funding (BDL 2017). However, the lease exposure of firms varies among economic sectors. While an obligation to recognise lease agreements would increase the debt-to-equity ratio of German retailers by 75.3 per cent, chemical or construction firms would only be slightly affected (Fuelbier, Silva, and Pferdehirt 2008, 139).

4 For example, as A. Schaefer put it: ‘I was drilled in San Francisco’ (Der Spiegel 196 3, 32).

5 For example, the tax authority released tax decrees in 1968 that were concerned with issues of value-added tax for lease agreements in which an off-balance sheet treatment was determined (Schierloh 1971, 32).

6 The principle of economic ownership has been introduced for tax issues by an academic and judge at the German Fiscal court in the 1920s. Broadly speaking, economic ownership implies that, in specific cases, it is not the legal ownership but the permanent control over an asset that is decisive for the balance sheet treatment.

7 Previous court decisions and legal comments regarding specific laws are cited as well. As they were only used to demonstrate that the decision of the court was permitted by the law, these citations are excluded.

8 At that time, a European lobbying body had been established as well. In 1972, Leaseurope was founded and continues to represent the lobbying body of the European lessors (Marek 2001, 12).

9 These are, firstly, the Vollamortisations-Erlass for mobile leases in 1971; secondly, the Vollamortisations-Erlass for real estate leases in 1972; thirdly, the Teilamortisations-Erlass for mobile leases in 1975; and, finally, the Teilamortisations-Erlass for real estate leases in 1991.

10 These bright lines have been adopted from the existing accounting practice of German lessor firms (Interview #1b). The most important bright line is the so-called ‘90-40 rule’, which determines that the lease is off-balance sheet if the basic lease accounts for less than 40 per cent and exceeds more than 90 per cent of the economic lifetime.

11 The first chairman became an influential critic of off-balance sheet leases.

12 Due to the impact of the German discourse on further German-speaking countries, the lobbying bodies of Austria and Switzerland sponsored the research centre in Cologne as well (Interview #1b).

13 DIHT (1966) is excluded, as it is an opinion and not an academic source.

14 Other actors in the field, such as authors with a link to the IDW, may also pursue a political agenda. However, only a very few publications stem from these actors and no patterns could be identified.

15 H. Havermann was also widely cited by the BFH in 1970.

16 The author was a member of the IDW. In his article, Niehus cites both sponsored studies from 1973 and 1976 to justify the suspension.