nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2007‒03‒10
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. IFRS Introduction And Its Effect On Listed Companies in Spain By Jordi Perramon; Oriol Amat
  2. Accounting for financial instruments: A comparison of European companies’ practices with IAS 32 and IAS 39 By Patrícia Teixeira Lopes; Lúcia Lima Rodrigues
  3. Earnings and capital management in alternative loan loss provision regulatory regimes By Daniel Pérez; Vicente Salas-Fumás; Jesús Saurina
  4. Debt Composition and Balance Sheet Effect of Currency Crisis in Indonesia By Agustinus Prasetyantoko
  5. Recent Findings on Tax-Related Regulatory Burden on SMMEs in South Africa. Literature Review and Policy Options By Doubell Chamberlain; Anja Smith
  6. Harmonization of Corporate Tax Systems and its Effect on Collusive Behavior By Schindler, Dirk; Schjelderup, Guttorm
  7. Corporate Taxes in the World Economy: Reforming the Taxation of Cross-Border Income By Harry Grubert; Rosanne Altshuler
  8. Greenwash: Corporate Environmental Disclosure under Threat of Audit By Thomas P. Lyon; John W. Maxwell
  9. Management information systems: the Balanced Scorecard in Spanish Public Universities By Josep Lluís Boned; Llorenç Bagur
  10. Taxation without Commitment By Reis, Catarina

  1. By: Jordi Perramon; Oriol Amat
    Abstract: From the beginning of January 2005 publicly traded companies in the European Union have to comply with the International Financial Reporting Standards (IFRS) for their consolidated accounts, as required by 1606/2002 European Commission Regulation. It had been suggested that the new accounting rules will facilitate not only the process of international harmonization of financial statements, but also efficient performance of financial markets and capital flows worldwide. This study analyzes the first results of IFRS implementation by Spanish non-financial listed companies.
    Keywords: IFRS, IAS, Accounting harmonization
    JEL: M41 N24
    Date: 2006–07
  2. By: Patrícia Teixeira Lopes (University of Porto, Faculty of Economics, Portugal); Lúcia Lima Rodrigues (School of Management and Economics, University of Minho, Portugal)
    Abstract: This paper analyses accounting for financial instruments of STOXX 50 companies and compare them to the requirements of IAS 32 and IAS 39, before IFRS are mandatory in the European Union. We use a list of 120 categories of inquiry and 370 possible responses and analyse companies’ annual reports. The results show that the majority of companies disclose the fair value amounts and methods of calculation but the information is neither clear nor objective, preventing the fair value information from being relevant and useful. We conclude that companies have a long way to go in terms of accounting and disclosure of financial instruments, namely derivatives. The mandatory adoption of more stringent standards such as the IAS 32 and IAS 39 may improve the information disclosed by companies. Doubts about the compliance degree and the usefulness of the information still remain. This paper brings new perspectives to the challenges of IAS/IFRS adoption, namely to what relates to fair value measurement.
    Keywords: Accounting for financial instruments, Fair value accounting, International Accounting, Accounting harmonisation, IAS/IFRS, STOXX 50
    JEL: M41
    Date: 2007–03
  3. By: Daniel Pérez (Banco de España); Vicente Salas-Fumás (Banco de España; Universidad de Zaragoza); Jesús Saurina (Banco de España)
    Abstract: The paper sets an accounting and behavioral framework from which we derive a reduced form equation to test income smoothing and capital management practices through loan loss provisions (PLL) by Spanish banks. Spain offers a unique environment to perform those tests because there are very detailed rules to set aside loan loss provisions and they are not counted as regulatory capital. Using panel data econometric techniques, we find evidence of income smoothing through PLL but not of capital management. The paper draws some lessons for accounting rule setters and banking regulators regarding the current changes in the accounting framework (introduction of IFRS/IAS in Europe) as well as the new capital framework (Basel II). In particular, a very detailed set of rules to set aside loan loss provisions does not prevent managers from decreasing earnings volatility, similarly to what happens in a more principles oriented accounting framework.
    Keywords: income smoothing, capital management, ifrs/ias, basel ii
    JEL: G18 G21
    Date: 2006–06
  4. By: Agustinus Prasetyantoko (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: The fashionable analysis of financial crisis accentuates on the role of corporate debt composition bearing<br />the maturity and currency mismatch. Using 226 listed companies in Jakarta Stock Exchange, this paper<br />investigates the role of currency and maturity mismatches in propagating the negative effects of currency depreciation. By nature, depreciation could enhance export performance by its “competitiveness effect”, since price of goods should be cheaper. Nevertheless, due to the effects of maturity and currency mismatch, depreciation decreases net worth of the firms through “balance sheet effect”. This paper<br />focuses on the impact of currency depreciation on firm-level investment. By panel data analysis, we find<br />that firms with more dollar debt invest less in both long and short-term investment. Unfortunately, this<br />paper fails to provide empirical evidence on the impact of currency depreciation on firm-level investment<br />and other firm performance. However, it seems that the extreme currency depreciation followed by financial and economic crisis destroys structurally investment condition in Indonesia. Therefore, even though currency depreciation is not related significantly to firm-level investment, it is likely not true that the depreciation does not matter on firm as well as economic performance.
    Keywords: maturity mismatch ; firm investment ; balance sheet effect ; financial crisis
    Date: 2007–03–01
  5. By: Doubell Chamberlain; Anja Smith (Genesis Analytics)
    Abstract: Abstract: Regulatory compliance costs impose a deadweight burden on firms and therefore should be minimised. In achieving this goal, it is necessary to embrace a process of smart regulation, rather than focus on deregulation. Tax compliance cost is one type of regulatory costs that is often viewed to have a large negative impact on SMMEs. To gauge the impact of this cost on small business in South Africa, this document reviews three available studies on the impact of tax compliance costs on South African SMMEs. The three studies reviewed are: • Counting the Cost of Red Tape for Business in South Africa by SBP (2005); • Measurement of Value Added Tax Act and Regional Services Councils Act-induced Administrative Burdens for South African Small Businesses by Upstart Business Strategies (2004), commissioned by the Department of Trade and Industry (dti); and • SMME Facilitation Program (Report Version) by the South African Revenue Services (SARS) to be released in 2005. South African tax compliance costs cannot be judged in isolation. Available information on South African tax compliance costs and their impact on SMMEs are captured in the three reviewed studies. The SBP (2005) study estimates total regulatory compliance costs for formal firms in South Africa to have been approximately R79 billion in 2004, 6.5 per cent of GDP, and total tax compliance costs to have been roughly R20 billion in the same year. Due to the nature of the report, it makes no tax-specific recommendations and only focuses on broad regulatory compliance recommendations. The Upstart Business Strategies (2004) study focuses on two specific taxes, Value-Added Tax (VAT) and Regional Service Council Levies (not administered by SARS, but by regional service councils). The study employs Mistral®, a proprietary “bottom-up” technique to quantify tax compliance costs. The study finds that the average SMME spends approximately R6 027 on two compliance activities associated with VAT – recordkeeping and completion tax returns. The total VAT compliance cost for an average SMME is estimated to range between R6 000 and R8 000 annually. The recommendations of the study are of a broad practical nature and focused on reducing the time spent on specific tax compliance activities. It does not specify the how of its recommendations, for example, it suggests that the internal reliability of SARS logistics needs to be improved and that queing time spent at SARS needs to be reduced, but does not explain how these outcomes should be achieved. The SARS (2005) study does not generate its own empirical data. It reviews the empirical findings of the above two studies and findings of other studies broadly or specifically focused on SMMEs and the formal/informal economic divide. In addition, it draws on a number of qualitative insights gained during interaction with a range of individuals and organisations aware of small business concerns. A number of recommendations with regards to SARS structures (for example, creation of a Small Business Centre and Small Business help desks), SARS communication channels and SARS products (specifically VAT) are made. Rather than simply focusing on small “cosmetic” tax changes, what is required is intensive co-ordination of SMME policy across different government departments. The narrow focus of the reviewed studies, excluding the SARS report, strengthen the idea that relevant policy considerations do not extend beyond the implementation of technical changes to tax legislation. However, a strong case can be made for a number of other SMME policy-related issues to receive greater emphasis than tax compliance costs. Conclusions relative to tax compliance cost include the fact that a large component of tax compliance costs can be ascribed to firm-level inefficiencies. While a reduction in the tax compliance burden can help to create a more enabling environment for business, a special tax regime for small businesses might not be the best way to achieve lower compliance costs. Far more than simply tax changes will be required to unlock the South African SMME market.
    Keywords: SMMEs, Regulatory compliance costs, tax compliance costs
    JEL: A1
    Date: 2006–03
  6. By: Schindler, Dirk (Meteorological Institute, University of Freiburg); Schjelderup, Guttorm (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: We study how harmonization of corporate tax systems affects the stability of international cartels. We show that tax base harmonization reinforces collusive agreements, while harmonization of corporate tax rates may destabilize or stabilize cartels. We also find that bilateral and full harmonization to a common standard is worse from society’s point of view than unilateral harmonization to a minimum tax standard.
    Keywords: Corporate tax systems; tacit collusion
    JEL: H87 L10
    Date: 2007–03–01
  7. By: Harry Grubert (U.S. Treasury Department, Office of Tax Analysis); Rosanne Altshuler (Rutgers University, Department of Economics)
    Abstract: Proposals for the reform of the taxation of cross-border income are evaluated within the general context of the corporate tax in an open economy. We focus on the various behavioral decisions that can be affected such as the location of income and its repatriation. The two income tax proposals considered are: (1) dividend exemption and (2) burden neutral worldwide taxation in which all foreign subsidiary income is included currently in the U.S. worldwide tax base, and at the same time the corporate tax rate is lowered and overhead allocations to foreign income are eliminated so as to keep the overall U.S. tax burden on foreign income the same. We also consider the attractiveness of destination-based and origin-based consumption taxes. Our evaluation of reform options makes use of the best available information. We also present new information on the burden of the current system. However, there are many important unknown behavioral parameters required to judge international tax systems and this missing information, some of which may ultimately be unknowable, makes it difficult to make definitive recommendations. The burden neutral worldwide option seems to offer greater efficiency gains among the two income tax options, particularly because of reduced incentives for income shifting which wastes resources and distorts effective tax rates on investment. To be sure, the burden neutral worldwide option would increase effective tax rates on investment in low-tax countries while not increasing the average U.S. tax rate on foreign source income. The option requires a substantial reduction in the U.S. corporate tax rate. We suggest that increased capital mobility makes changing the mix of corporate and personal level taxation of business income appropriate even apart from the special issues of cross-border taxation such as repatriation taxes and income shifting opportunities that are the main subject of the paper.
    Keywords: international taxation, multinational corporations, tax reform
    JEL: H20 H25 H87
    Date: 2007–03–01
  8. By: Thomas P. Lyon (Stephen M. Ross School of Business at the University of Michigan); John W. Maxwell (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: We develop an economic model of “greenwash,” in which a firm strategically discloses environmental information and a non-governmental organization (NGO) may audit and penalize the firm for failing to fully disclose its environmental impacts. We identify conditions under which NGO punishment of greenwash backfires, inducing the firm to become less rather than more forthcoming about its environmental performance. We show that complementarities with NGO auditing may justify public policies encouraging firms to adopt environmental management systems. Mandatory disclosure rules offer the potential for better performance than NGO auditing, but the necessary penalties may be so large as to be politically unpalatable. If so, a mix of mandatory disclosure rules, NGO auditing and environmental management systems may be needed to induce full environmental disclosure.
    JEL: L0
    Date: 2006–03
  9. By: Josep Lluís Boned; Llorenç Bagur
    Abstract: Organisations are becoming increasingly aware of the need for management information systems, due largely to the changing environment and a continuous process of globalisation. All of this means that managers need to adapt the structures of their organisations to the changes and, therefore, to plan, control and manage better. The Spanish public university cannot avoid this changing (demographic, economic and social changes) and globalising (among them the convergence of European qualifications) environment, to which we must add the complex organisation structure, characterised by a high dispersion of authority for decision making in different collegiate and unipersonal organs. It seems obvious that these changes must have repercussions on the direction, organisation and management structures of those public higher education institutions, and it seems natural that, given this environment, the universities must adapt their present management systems to the demand by society for the quality and suitability of the services they provide.
    Keywords: Management accounting, balanced scorecard, public universities
    JEL: M41 M49
    Date: 2006–08
  10. By: Reis, Catarina
    Abstract: This paper considers a Ramsey model of linear capital and labor income taxation in which a benevolent government cannot commit ex-ante to a sequence of taxes for the future. In this setup, if the government is allowed to borrow and lend to the consumers, the optimal capital income tax is zero in the long run. This result stands in marked contrast with the recent literature on optimal taxation without commitment, which imposes budget balance and typically finds that the optimal capital income tax does not converge to zero. Since it is efficient to backload incentives, breaking budget balance allows the government to generate surplus that reduces its debt or increases its assets over time until the lack of commitment is no longer binding and the economy is back in the full commitment solution. Therefore, while the lack of commitment does not change the optimal capital tax in the long run, it may impose an upper bound on the level of long run debt.
    Keywords: Fiscal Policy; Optimal Taxation; Incidence; Debt
    JEL: H22 E62 H62 H21
    Date: 2006–12

This nep-acc issue is ©2007 by Alexander Harin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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