nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2008‒04‒04
five papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Viewing tax policy through party-colored glasses: What German politicians believe By Friedrich Heinemann; Eckhard Janeba
  2. Inconsistent measurement and disclosure of non-contingent financial derivatives under IFRS: A behavioral perspective By Bischof, Jannis; Ebert, Michael
  3. Can Auditors Be Independent? - Experimental Evidence By Koch, Christopher; Weber, Martin; Wüstemann, Jens
  4. Analyzing the interest rate risk of banks using time series of accounting-based data: evidence from Germany By Entrop, Oliver; Memmel, Christoph; Wilkens, Marco; Zeisler, Alexander
  5. Labour Supply and Taxes By Meghir, Costas; Phillips, David

  1. By: Friedrich Heinemann (Centre for European Economic Research (ZEW)); Eckhard Janeba (University of Mannheim, CESifo)
    Abstract: The process of globalization has an important impact on national tax policies. Most of the literature does not focus directly on the political decision making process and assumes that the desired tax policy is responding to objective underlying tradeoffs. Based on an original survey of members of German national parliament (Bundestag) in 2006/7 we document a strong ideological bias among policy makers with respect to the perceived mobility of international tax bases (real capital and paper profits). Ideology via party affiliation influences also directly and indirectly the perceived national autonomy in tax setting and preferences for a EU minimum tax for companies. There seems little consensus as to what the efficiency costs of capital taxation in open economies are, even though our survey falls in a period of extensive debate about and actual adoption of a company tax reform bill in Germany. From a comparative politics perspective our results document the strong role of party discipline in a parliamentary democracy as the actual voting behaviour within a party is much more cohesive than the survey evidence suggests.
    Keywords: Globalization, business taxation, beliefs, member of parliament, profit shifting, party discipline, yardstick competition
    JEL: D78 D83 H25
    Date: 2008
  2. By: Bischof, Jannis (Sonderforschungsbereich 504); Ebert, Michael (Universität Mannheim)
    Abstract: The accounting principle of decomposing hybrid financial instruments into their derivative and non-derivative components is widely accepted as it results in a consistent treatment of hybrid instruments and economically equivalent combinations of contracts. On the other hand, non-contingent derivatives and their economic equivalents are not treated consistently under the mixed accounting model underlying IAS 39. This calls for a critical assessment. The conventional criticism regarding such inconsistencies refers to the creation of opportunities for earnings management. The aim of this paper is to add another perspective by including the effects of the related disclosure rules on risk perception by analysts and investors. Thereby, we consider both the presentation on the balance sheet and the additional disclosure in the notes according to IFRS 7. From extant literature, we diligently develop the hypothesis that, due to availability effects, entities using non-contingent derivatives are perceived to be riskier than entities using economic equivalents, although in fact the latter are riskier due to their exposure to additional counterparty risk. This bias in the perception of disclosures might thereby alter an entity’s costs of capital in a way not intended by IAS 39. In particular, we expect individuals to valuate entities using non-contingent derivatives lower than identical entities using economically equivalent contracts instead. We expect this difference in valuation to result from a higher cognitive availability of negative associations with derivatives than with non-derivatives. The underlying assumptions are outlined as they build a framework of hypotheses that could be tested in future research, particularly in experimental survey studies.
    Date: 2007–04–04
  3. By: Koch, Christopher (Sonderforschungsbereich 504); Weber, Martin (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre); Wüstemann, Jens (Lehrstuhl für ABWL und Wirtschaftsprüfung/Sonderforschungsbereich 504)
    Abstract: The Sarbanes-Oxley Act of 2002 has transformed the institutional environment in the US by making the audit committee responsible for the appointment, compensation and oversight of the auditor. We examine whether this institutional change successfully resolves the alleged problem of an unconscious favoring of the management (Bazerman et al. 1997, 2002, 2006) by changing the effects of auditors’ economic incentives and psychological pressure. In our experimental design, we make use of the particular features of the German institutional setting as it enables us to manipulate the client of the auditor in a realistic and clear-cut way. 72 German auditors with at least two years of job experience participated in our experiment. Following Turner (2001), we distinguish in our analyses between belief tasks (e.g. evidence evaluation) and action tasks (e.g. audit opinion). Our findings imply that certain institutional features seem to be helpful in ensuring auditor independence. First, we find that auditors demonstrate professional scepticism in belief tasks. This seems to counteract any potentially negative effect of the acceptability heuristic in actions tasks. Second, experience helped auditors in coping with psychological pressure. Third, making the auditor accountable to a supervisory board was helpful in reducing the risk that financial considerations would impair auditor independence.
    Date: 2007–08–09
  4. By: Entrop, Oliver; Memmel, Christoph; Wilkens, Marco; Zeisler, Alexander
    Abstract: This paper describes the first thorough analysis of the interest risk of German banks on an individual bank level. We develop a new method that is based on time series of accountingbased data to quantify the interest risk of banks and apply it to analyze the German banking system. We find evidence that our model yields a significantly better fit of banks' internally quantified interest rate risk than a standard approach that relies on one-point-in-time data, and that the interest rate risk differs between banks of different size and banking group. Additionally, we find structural differences between trading book and non-trading book institutions.
    Keywords: German financial institutions, interest rate risk, accounting-based approach, maturity transformation, banking supervision, model evaluation
    JEL: G18 G21
    Date: 2008
  5. By: Meghir, Costas (University College London); Phillips, David (Institute for Fiscal Studies, London)
    Abstract: In this paper we provide an overview of the literature relating labour supply to taxes and welfare benefits with a focus on presenting the empirical consensus. We begin with a basic continuous hours model, where individuals have completely free choice over their hours of work. We then consider fixed costs of work, the complications introduced by the benefits system, dynamic aspects of labour supply and we place the analysis in the context of the family. The key conclusion of this work is that in order to estimate the impact of tax reform and be able to generalise results, a structural approach that takes account of many of these issues is desirable. We then discuss the “new Tax Responsiveness” literature which uses the response of taxable income to the marginal tax rate as a summary statistic of the behavioural response to taxation. Underlying this approach is the unsatisfactory nature of using hours as a proxy for labour effort for those with high levels of autonomy on the job and who already work long hours, such as the self employed or senior executives. After discussing relevant theory we then provide a summary of empirical estimates and the methodology underlying the studies. Our conclusion is that hours of work are relatively inelastic for men, but are a little more responsive for married women and lone mothers. On the other hand, participation is quite sensitive to taxation and benefits for women. Within this paper we present new estimates form a discrete participation model for both married and single men based on the numerous reforms over the past two decades in the UK. We find that the participation of low education men is somewhat more responsive to incentives than previously thought. For men with high levels of education, participation is virtually unresponsive; here the literature on taxable income suggests that there may be significant welfare costs of taxation, although much of this seems to be a result of shifting income and consumption to non-taxable forms as opposed to actual reductions in work effort.
    Keywords: labour supply, income taxation, welfare benefits, tax credits, incentive effects
    JEL: J22 H24 H31
    Date: 2008–03

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