nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2009‒07‒03
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Optimal Taxation in Theory and Practice By N. Gregory Mankiw; Matthew C. Weinzierl; Danny Yagan
  2. INTERNAL AUDIT QUALITY - A KEY ELEMENT FOR THE MANAGEMENT DECISION By Dascalu, Doina Elena; Turlea, Eugeniu; Nicolae, Florina
  3. Cost of capital when dividens are deductible By Ignacio Velez-Pareja; Julian Benavides Franco
  4. Taxes in Europe Database By European Commission ? DG TAXUD
  5. A new framework of measuring national nutrients balance for international and global comparison By Viet-Ngu Hoang; Mohammad Alauddin
  6. Taxation trends in the European Union: 2009 edition By Florian Woehlbier; Marco Fantini; Tatjana Lapunova; Beata Heimann; Gaetan Nicodeme; Katri Kosonen; Doris Prammer; Maya Hristova; Milan Pein; Thomas Hemmelgarn; Werner Vanborren; Alessandro Lupi; Monika Wozowczyk
  7. Banks As Social Accountants: Credit and Crisis Through an Accounting Lens By Bezemer, Dirk J
  8. “No One Saw This Coming”: Understanding Financial Crisis Through Accounting Models By Bezemer, Dirk J
  9. Using Accounting Data in Cartel Damage Calculations – Blessing or Menace? By Johannes Paha
  10. Opting for Opting-in? An Evaluation of the Commission’s Proposals for Reforming VAT for Financial Services By Rita de la Feria; Ben Lockwood

  1. By: N. Gregory Mankiw (Harvard University, Economic Department); Matthew C. Weinzierl (Harvard Business School, Business, Government and the International Economy Unit); Danny Yagan (Harvard University, Grad School of Arts and Sciences, Faculty of Arts and Sciences)
    Abstract: We highlight and explain eight lessons from optimal tax theory and compare them to the last few decades of OECD tax policy. As recommended by theory, top marginal income tax rates have declined, marginal income tax schedules have flattened, redistribution has risen with income inequality, and commodity taxes are more uniform and are typically assessed on final goods. However, trends in capital taxation are mixed, and capital income tax rates remain well above the zero level recommended by theory. Moreover, some of theory's more subtle prescriptions, such as taxes that involve personal characteristics, asset-testing, and history-dependence, remain rare in practice. Where large gaps between theory and policy remain, the difficult question is whether policymakers need to learn more from theorists, or the other way around.
    Date: 2009–06
  2. By: Dascalu, Doina Elena (Universitatea Spiru Haret, Facultatea de Finante si Banci); Turlea, Eugeniu (Academy of Economic Studies); Nicolae, Florina (Universitatea Spiru Haret, Facultatea de Finante si Banci)
    Abstract: The dialogue among stakeholders, audit committees and the regulatory authorities on the role and performance of internal audit has never been more robust, or more candid. The quality should be considered from three points of view: effectiveness in meeting the needs of stakeholders, efficiency and effectiveness in the use of the latest internal audit best practices, and effectiveness in complying with applicable professional and/or regulatory internal audit standards and requirements. Internal audit must address all three dimensions to be considered highly effective in today's challenging environment. Increasingly, audit committees and management are looking for objective feedback on the effectiveness of their internal audit functions. This demands a structured approach and methodology as well as indepth knowledge of internal audit practices and processes.
    Keywords: stakeholders; audit committee; quality; internal control; management
    JEL: M11 M42
    Date: 2009–06–16
  3. By: Ignacio Velez-Pareja; Julian Benavides Franco
    Abstract: When calculating Tax Savings, TS, we are confronted with a strange mix of accounting accrual and market value when involving TS in the calculation of the Weighted Average Cost of Capital, WACC, or the Cost of Equity, Ke. Firms earn the right to TS once they accrue the interest expense and they actually earn the TS when taxes are paid. Tax savings and the discount rate (y) we use to calculate their value are involved in the calculation of WACC and Ke. Textbook WACC formulation is a very special and unique case that is not typical. Based on previous findings, we derive a general approach to those formulas that take into account any kind of TS related to the financing decision of a firm and any date when the TS is earned. These formulations can be used to introduce any type of externality that creates value through tax savings not captured by neither the cost of debt nor the cost of equity. In this paper we develop the formulations for Ke, the cost of levered equity and the average cost of capital when dividends or interest on dividends are deductible. We show that using the proper formulation the most known valuation methods, i) Firm value with Free Cash Flow and WACC for the FCF; ii) value with the Capital Cash Flow and WACC for the CCF; iii) equity value with the Cash Flow to Equity and Ke, the levered cost of equity plus debt; iv) Adjusted Present Value, APV are consistent and give identical results.
    Date: 2009–06–22
  4. By: European Commission ? DG TAXUD
    Abstract: The "Taxes in Europe" database is the European Commission's on-line information tool covering the main taxes in force in the EU Member States. Access is free for all users. The system contains information on around 650 taxes, as provided to the European Commission by the national authorities. The "Taxes in Europe" database contains, for each individual tax, information on its legal basis, assessment base, main exemptions, applicable rate(s), economic and statistical classification, as well as the revenue generated by it. The information is listed in the form of a downloadable file. The "Taxes in Europe" database is not meant to constitute a reference for legal purposes. The "Taxes in Europe" database covers the following types of taxes: All main taxes in revenue terms. These include notably personal income taxes, corporate income taxes, value added taxes, excise duties; The main social security contributions. A list of minor taxes yielding less than 0.1% of GDP (not covered by the database) can be found here. The database does NOT cover information on Customs duties and tariffs. This type of information can be found in the customs tariff database TARIC.
    Keywords: European Union, taxation, database
    JEL: H23 H24 H25 H27 H71
    Date: 2009–06
  5. By: Viet-Ngu Hoang; Mohammad Alauddin (School of Economics, The University of Queensland)
    Abstract: Nutrients balance such as nitrogen and phosphorus balance are increasingly used as an indicator of the environmental performance of agricultural sector in international and global context. However there still is a lack of harmony in the use of methods for estimating the nutrients balance among countries. This is because of the disagreement regarding the accuracy and uncertainty of different accounting methods. The lack of harmony in the methods used in different countries further increases the uncertainty in the context of the international comparisons. This paper provides a new framework for nutrients balance calculation using the farm-gate accounting method. The calculation under this new framework takes advantage of availability of data from FAO and other reliable national and international sources. Due to this, the proposed framework is highly adaptable in many countries, making the global comparison feasible. The paper also proposes three criteria including adaptability, accuracy and interpretability to assess the appropriateness of nutrients accounting method. Based on these criteria, the paper provides a comprehensive comparison of the farm-gate and soil-surface methods in accounting country-level nutrients balance of agricultural production. The paper identifies some shortcomings of the soil-surface balance and shows that the farm-gate method has a greater potential of providing a more accurate and meaningful estimation of national nutrients balance.
    Date: 2009
  6. By: Florian Woehlbier (European Commission); Marco Fantini (European Commission); Tatjana Lapunova (European Commission); Beata Heimann (European Commission); Gaetan Nicodeme (European Commission); Katri Kosonen (European Commission); Doris Prammer (European Commission); Maya Hristova (European Commission); Milan Pein (European Commission); Thomas Hemmelgarn (European Commission); Werner Vanborren (European Commission); Alessandro Lupi (European Commission); Monika Wozowczyk (European Commission)
    Abstract: Taxation trends in the European Union: 2009 covers the development of taxation in all 27 Members of the European Union and Norway in a comparable format since 1995. The report is organised as follows: Part I offers an overview of taxation in Europe, describing the trends in the total tax ratio, the structure of revenues by tax type, the distribution of revenues amongst government levels, and the main developments in the rates of the personal and corporate income tax. Part II focuses on taxation of consumption, labour, and capital, as well as on environmental taxation. Part III consists of 28 Country Chapters illustrating, for each Member State (and Norway), the revenue trends and supplying a summary description of the tax system. This chapter outlines the main results from Parts I and II.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2009–06
  7. By: Bezemer, Dirk J
    Abstract: This paper probes the role of banks and credit in our socio-economic system using the metaphor of banks as social accountants (Stiglitz and Weiss 1988). It highlights the credit nature of money, and thus the fact that money is an accounting construct. This motivates the viewing of financial booms and crises through an accounting lens. By accounting necessity, credit creation in deposit-taking institutions implies debt creation. The analysis is that self-amortizing credit to the real sector grows apace with the size of the economy while credit to financial asset markets creates a net debt overhead on the real economy, as illustrated by dissection of long-term credit flows in the US economy. The long boom in credit to the financial sector so led to the growth of debt since the 1980s and onto the credit crisis. Turning to the behavioral aspects of credit and debt growth, the paper also discusses the role of banks and regulators in facilitating the boom. It identifies three ways in which debt growth was de-emphasized in monitoring and policy making.
    Keywords: credit; economic history; banks; accounting; crisis; regulation
    JEL: E42 E58 E65 E52 E44 G21
    Date: 2009–06–13
  8. By: Bezemer, Dirk J
    Abstract: This paper presents evidence that accounting (or flow-of-fund) macroeconomic models helped anticipate the credit crisis and economic recession. Equilibrium models ubiquitous in mainstream policy and research did not. This study identifies core differences, traces their intellectual pedigrees, and includes case studies of both types of models. It so provides constructive recommendations on revising methods of financial stability assessment. Overall, the paper is a plea for research into the link between accounting concepts and practices and macro economic outcomes.
    Keywords: credit crisis, recession, prediction, macroeconomics, flow of funds, financialization, neoclassical economics, accounting research
    JEL: C53 E44 E37 E47
    Date: 2009–06–16
  9. By: Johannes Paha (Justus-Liebig-University Gießen, Licher Straße 62, D-35394 Gießen)
    Abstract: Standard methods for calculating cartel-damages rely on data of prices charged and quantity sold. Such data may not easily be available. In this paper, it is shown that a lower bound for cartel-damages can also be computed from accounting data. In previous literature it is shown that economic profits can hardly be inferred from accounting data. Therefore, it is shown under which econometrically testable assumptions on accounting costs a meaningful lower bound for cartel damages can consistently be estimated from accounting data. An estimation of cartel-damages is performed for four vitamins producers that participated in the vitamins cartel. The results indicate that both the aggregation-level and the publication-frequency of accounting data pose a challenge to the estimation of cartel damages. A further challenge is to appropriately reflect the strength respectively effectiveness of the collusive agreement in the specification of any such estimation.
    JEL: C22 L12 L13 L41
    Date: 2009
  10. By: Rita de la Feria (Oxford University Centre for Business Taxation); Ben Lockwood (University of Warwick, Oxford University Centre for Business Taxation)
    Abstract: This paper provides a legal and economic analysis of the European Commission’s recent proposals for reforming the application of VAT to financial services, with particular focus on their “third pillar”, under which firms would be allowed to opt-into taxation on exempt insurance and financial services. From a legal perspective, we show that the proposals’ “first and second pillar” would give rise to considerable interpretative and qualification problems, resulting in as much complexity and legal uncertainty as the current regime. Equally, an option to tax could potentially follow significantly different legal designs, which would give rise to discrepancies in the application of the option amongst Member States. On the economic side, we show that quite generally, firms have an incentive to opt-in only on business-to-business transactions. An estimate of the upper bound on the amount of tax revenue that might be lost from allowing opting-in is provided.
    Date: 2009

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