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Income smoothing by valuation of repurchase obligations in the annual financial statements of car dealerships

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  • Hans Guenther Barth

    (Lindenweg 9, 82205 Gilching, Deutschland)

Abstract

This paper deals with the accounting patterns of German car dealerships in the period from 2006 to 2010. In connection with the brokerage of passenger car leases the car dealers and lessors agree on hedging the residual values of the lease car returns. Such hedging instruments require accounting for expected losses in case of impairment. The relation of total amount of outstanding repurchase obligations as of balance sheet date to balance sheet totals qualifies the related risk assessment of the hedging instrument to be an outstanding device for artificial income smoothing. Annual financial statements of 42 dealerships were analysed whether accounting for future losses from repurchase obligations is used for income smoothing purposes. The influence of changes in income tax rulings is taken into account.

Suggested Citation

  • Hans Guenther Barth, 2013. "Income smoothing by valuation of repurchase obligations in the annual financial statements of car dealerships," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(7), pages 1977-1983.
    • Handle: RePEc:mup:actaun:actaun_2013061071977
    DOI: 10.11118/actaun201361071977
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    References listed on IDEAS

    as
    1. Dascher, Pe & Malcom, Re, 1970. "Note On Income Smoothing In Chemical Industry," Journal of Accounting Research, Wiley Blackwell, vol. 8(2), pages 253-259.
    2. Santanu Das & Anurika Vaish & Utkarsh Goel, 2012. "Does Loan Loss Provision Signal Income Smoothing? – An Empirical Investigation of Indian Banking Industry," The IUP Journal of Accounting Research and Audit Practices, IUP Publications, vol. 0(2), pages 58-68, April.
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