nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2009‒02‒28
five papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Corporate Fraud, Governance and Auditing By Immordino, Giovanni; Pagano, Marco
  2. "The Case Against Intergenerational Accounting The Accounting Campaign Against Social Security and Medicare " By James K. Galbraith; L. Randall Wray; Warren Mosler
  3. Reforming the Tax System in Korea to Promote Economic Growth and Cope with Rapid Population Ageing By Randall S. Jones
  4. Internal Reporting Systems, Compensation Contracts and Bank Regulation By Lóránth, Gyöngyi; Morrison, Alan
  5. Endogenous Information Flows and the Clustering of Announcements By Acharya, Viral V; DeMarzo, Peter; Kremer, Ilan

  1. By: Immordino, Giovanni; Pagano, Marco
    Abstract: We analyze corporate fraud in a model in which managers have superior information but are biased against liquidation, because of their private benefits from empire building. This may induce them to misreport information and even bribe auditors when liquidation would be value-increasing. To curb fraud, shareholders optimally choose auditing quality and the performance sensitivity of managerial pay, taking external corporate governance and auditing regulation into account. For given managerial pay, it is optimal to rely on auditing when external governance is in an intermediate range. When both auditing and incentive pay are used, worse external governance must be balanced by heavier reliance on both of those incentive mechanisms. In designing managerial pay, equity can improve managerial incentives while stock options worsen them.
    Keywords: accounting fraud; auditing; corporate governance; managerial compensation; regulation
    JEL: G28 K22 M42
    Date: 2008–12
  2. By: James K. Galbraith; L. Randall Wray; Warren Mosler
    Abstract: The Federal Accounting Standards Advisory Board (FASAB) has proposed subjecting the entire federal budget to "intergenerational accounting"--which purports to calculate the debt burden our generation will leave for future generations--and is soliciting comments on the recommendations of its two "exposure drafts." The authors of this brief find that intergenerational accounting is a deeply flawed and unsound concept that should play no role in federal government budgeting, and that arguments based on this concept do not support a case for cutting Social Security or Medicare. The FASAB exposure drafts have not made a persuasive argument about basic matters of accounting, say the authors. Federal budget accounting should not follow the same procedures adopted by households or business firms because the government operates in the public interest, with the power to tax and issue money. There is no evidence, nor any economic theory, behind the proposition that government spending needs to match receipts. Social Security and Medicare spending need not be politically constrained by tax receipts--there cannot be any "underfunding." What matters is the overall fiscal stance of the government, not the stance attributed to one part of the budget.
    Date: 2009–02
  3. By: Randall S. Jones
    Abstract: Korea has one of the lowest tax burdens in the OECD area, reflecting its small public sector. However, rapid population ageing will put upward pressure on government spending. The challenge is to meet the long-run need for greater expenditures and tax revenue while sustaining strong economic growth. A pro-growth tax reform implies relying primarily on consumption taxes for additional revenue. There is also scope for raising personal income tax revenue from its current low level by broadening the base by reducing the exemptions for personal income. The planned cuts in the corporate tax rate should be financed at least in part by reductions in tax expenditures. The broadening of direct tax bases would also help finance an expansion of the earned income tax credit to address widening income inequality. In addition, the local tax system should be simplified and reformed to enhance the autonomy of local governments.<P>Réformer le système fiscal en Corée afin de favoriser la croissance économique et de faire face au rapide vieillissement démographique<BR>La Corée est l’un des pays où la charge fiscale est la plus faible dans la zone de l’OCDE, en raison de la petite taille du secteur public. Cependant, le rapide vieillissement démographique va exercer une pression grandissante sur les finances publiques. La difficulté consiste à répondre au besoin à long terme de dépenses publiques et de recettes fiscales accrues tout en soutenant une vigoureuse expansion économique. Pour qu’une réforme fiscale aide à la croissance, elle doit privilégier les impôts sur la consommation comme source de recettes supplémentaires. Il est aussi possible d’augmenter le produit de l’impôt sur le revenu des personnes physiques, actuellement peu élevé, en élargissant l’assiette grâce à une diminution des exonérations. Les réductions prévues du taux d’imposition des sociétés devraient être financées, en partie du moins, par des compressions de dépenses fiscales. L’élargissement des bases d’imposition directe aiderait aussi à financer une extension du crédit d’impôt sur les revenus d’activité afin de remédier aux inégalités croissantes de revenu. Par ailleurs, le système d’impôts locaux devrait être simplifié et réformé afin de renforcer l’autonomie des collectivités territoriales.
    Keywords: fiscalité, tax reform, impôt, dépense fiscale, property tax, taxe foncière, relative poverty, pauvreté relative, fiscalité locale, capital gains taxes, TVA, VAT, personal income tax, corporate income tax, réforme de la taxation, coin fiscal, impôt sur les bénéfices, tax expenditures, earned income tax credit, crédit d’impôt sur le revenu d’activités professionnelles, environmentally-related taxes, taxes liées à l'environnement, Korean tax system, système de taxation coréen, local tax system, tax wedge
    JEL: H20 H22 H23 H24 H25
    Date: 2009–02–20
  4. By: Lóránth, Gyöngyi; Morrison, Alan
    Abstract: We examine the interdependency between loan officer compensation contracts and commercial bank internal reporting systems (IRSs). The optimal incentive contract for bank loan officers may require the bank headquarters to commit not to act on certain types of information. The headquarters can achieve this by running a basic reporting system that restricts information flow within the bank. We show that origination fees for loan officers emerge naturally as part of the optimal contract in our set-up. We examine the likely effect of the new Basel Accord upon IRS choice, loan officer compensation, and bank investment strategies. We argue that the new Accord reduces the value of commitment, and hence that it may reduce the number of marginal projects financed by banks.
    Keywords: capital regulation; compensation; internal reporting system
    JEL: G20 G21 G30
    Date: 2009–02
  5. By: Acharya, Viral V; DeMarzo, Peter; Kremer, Ilan
    Abstract: We consider the release of information by a firm when the manager has discretion regarding the timing of its release. While it is well known that firms appear to delay the release of bad news, we examine how external information about the state of the economy (or the industry) affects this decision. We develop a dynamic model of strategic disclosure in which a firm may privately receive information at a time that is random (and independent of the state of the economy). Because investors are uncertain regarding whether and when the firm has received information, the firm will not necessarily disclose the information immediately. We show that bad news about the economy can trigger the immediate release of information by firms. Conversely, good news about the economy can slow the release of information by firms. As a result, the release of negative information tends to be clustered. Surprisingly, this result holds only when firms can preempt the arrival of external information by disclosing their own information first. These results have implications for conditional variance and skewness of stock and market returns.
    Keywords: disclosure; disclosure dynamics; disclosure timing; earnings announcement; skewness; stochastic volatility; strategic disclosure
    JEL: D82 G14 G3 M4
    Date: 2008–10

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