nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2009‒07‒28
eleven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Impact of IPSAS on Reforming Governmental Financial Information Systems: A Comparative Study By J. CHRISTIAENS; B. REYNIERS
  2. Tax-compliant transfer pricing and responsibility accounting By Cools, M.; Slagmulder, R.
  3. Uk Investors' Perceptions of Auditor Independence By Dart, Eleanor
  4. Audit- and non-audit fees and company characteristics in Belgium By L. VAN DE VELDE; I. DE BEELDE
  5. Income Misattribution under Formula Apportionment By James R. Hines, Jr.
  6. Teaching "Merchants' accompts" in Britain during the early modern period By Edwards, John Richard
  7. The Effects of the Length of the Tax-Loss Carryback Period on Tax Receipts and Corporate Marginal Tax Rates By John R. Graham; Hyunseob Kim
  8. The Impact of Private Equity Ownership on Corporate Tax Avoidance By Brad Badertscher; Sharon P. Katz; Sonja Olhoft Rego
  9. A Commercial Education for 'the midling Sort of People' in Mercantilist Britain By Edwards, John Richard
  10. Writing master and accountant - an exercise in professional identification By Edwards, John Richard
  11. The Resource‐Event‐Agent Reference Information Model for Intra‐ and Inter‐Enterprise Value Chains By W. LAURIER; G. POELS

    Abstract: The diversity in reformed governmental financial information systems created a need for harmonized international accounting standards, resulting in the elaboration of the IPSAS (International Public Sector Accounting Standards). By means of a survey to experts this study examines the extent to which governments in Europe adopt IPSAS-inspired accrual accounting and how the differing levels of adoption can be explained.<br><br>The study reveals diversity in the adoption process of IPSAS-inspired accrual accounting. Some governments still account cash based. Only a minority apply IPSASs. The majority of local and central governments apply accrual accounting disregarding IPSASs.<br><br>The trend toward accrual accounting can be explained by the need for transparency, efficiency and performance management. The fact that the IPSAS are unique and offer specific know-how is the main argument to make use of them. A number of jurisdictions do not adopt IPSASs because they transfer their own local business accounting rules.
    Keywords: Public sector accounting reforms, IPSAS, New Public Management, comparative study
    Date: 2009–07
  2. By: Cools, M.; Slagmulder, R. (Vlerick Leuven Gent Management School)
    Abstract: While the accounting literature has extensively studied the role of transfer pricing (TP) within the management control system (MCS) of companies, MCS issues related to cross-border transfers have received far less attention. In this case study, we investigate how TP tax compliance influences responsibility accounting when one multinational enterprise (MNE) uses a single set of transfer prices for both tax compliance and management control. First, the MNE eliminated TP negotiation, leading to psychologically disagreeable and sometimes also economically harmful situations. Second, the firm administratively simplified the determination of profit margins to such an extent that it could lead to suboptimal business decisions. Third, tax compliance induced a profit center designation for business units that were primarily responsible for costs or revenues. The firm first coped with a mixed treatment of these responsibility centers, allowing them to be profit centers for tax purposes and cost or revenue centers for MCS purposes. Later, top management became convinced of the benefits of a profit-center treatment for all purposes and started to convert the pro-forma profit centers into real profit centers. Overall, this study contributes to the stream of research documenting and explaining how MCSs are designed and used under environmental pressures.
    Keywords: international transfer pricing, management control system, responsibility accounting, multinational enterprise.
    Date: 2009–07–13
  3. By: Dart, Eleanor
    Abstract: The purpose of an auditor's role in society is to validate the truthfulness of financial statements. In order to perform their role, it is essential that auditors are independent of the client company and are not seen to have any motive for none disclosure of misleading information (Lavin, 1977:237). If owners of organisations doubt the auditor's independence, financial statements will lack credibility. However, despite independence lying at the heart of the auditing profession, independence concerns can be traced back to the 19th Century. During this time the accounting profession has found it difficult to produce a system of standards which eliminate conflicts of interest and protect auditors' independent mental attitude. In the UK, auditor independence concerns were heightened as a result of the scandals and corporate collapses which took place in the 1980s and 1990s (e.g. Maxwell, BCCI, Polly Peck, Barings Bank and Lloyd's of London). Since these scandals, much has changed in the 'environment within which auditing services are bought and sold' (Beattie and Fearnley, 1994:301), including the concentration of the audit market from the Big Eight auditors to the Big Four auditors and yet another, more recent, wave of high profile accounting scandals (e.g. Enron and WorldCom). Such changes have provoked new audit regulations. For example the Sarbanes-Oxley Act (2002) in the USA and the Auditing Practices Board's (2004) 'Ethical Standards for Auditors' in the UK. This questionnaire-based study conducted in 2005 focuses specifically upon how investors perceive some of the main auditor-client relationships that may have contributed to the collapse of Enron: the joint provision of audit and non-audit services, an audit firm's economic dependence upon a client and long relationships between auditors and clients, in order to determine whether, in the current climate, owners still have faith in the role of the auditor. The results suggest that, similar to previous UK perceptions based work (e.g. Firth 1980, 1981), economic dependence and the provision of non-audit services are perceived as greater threats to auditor independence than a long auditor-client relationship. In general, private investors and those without accounting qualifications displayed the most concern about auditor independence issues. However, all investors perceived the current 'Ethical Standards for Auditors' as sufficient safeguards for their investments and indicated that the introduction of further regulation was not necessary.
    Date: 2009–01
    Abstract: This paper investigates the link between audit and non-audit fees and company characteristics that can be observed in the financial statements: size of the client, complexity and business risk. Data on 83 listed companies in Belgium partly confirm the literature. The relation between fees and variables such as sales, total asses, solvency and the existence of losses agree with previous literature. For liquidity, return on assets and the ratio current assets/total assets, there are differences with the existing literature. The paper uses two different definitions for audit fees, taking into account the differences between US and Belgian regulations on disclosure. It is demonstrated that these differences have an impact on the relation between fees and company characteristics. Non-audit fees show similar relations to company characteristics as audit fees.
    Date: 2009–05
  5. By: James R. Hines, Jr.
    Abstract: Alternatives to the current system of separate tax accounting, such as the proposed Common Consolidated Corporate Tax Base in Europe, would apportion a firm’s worldwide profits using formulas based on the location of employment, capital or sales. This paper offers a new method of evaluating the accuracy of these apportionment rules and the ownership distortions they create. Evidence from European company accounts indicates that apportionment formulas significantly misattribute income, since employment and other factors on which they are based do a very poor job of explaining a firm’s profits. For example, the magnitude of property, employment and sales explains less than 22 percent of the variation in profits between firms, and the prediction estimates from using such a formula exceed half of predicted profits 64% of the time, and exceed twice predicted income 11% of the time. As a result, the use of formulas rewards or punishes international mergers and divestitures by reallocating taxable income between operations in jurisdictions with differing tax rates. The associated ownership distortion is minimized by choosing factor weights to minimize weighted squared prediction errors, for which, based on the European evidence, labor inputs should play little if any role in allocation formulas. But even a distortion-minimizing formula creates large incentives for inefficient ownership reallocation due to the enormous variation in profitability that is unexplained by formulary factors, implying that significant resource allocation costs would accompany European adoption of formulary apportionment methods.
    JEL: F23 G34 H25 H87
    Date: 2009–07
  6. By: Edwards, John Richard (Cardiff Business School)
    Abstract: British-based studies of the education of aspiring accountants have confined attention to developments following the formation of professional bodies. This paper examines educational provision during the early modern period which broadly coincides with the rapid commercial expansion that occurred in mercantilist Britain 1550-1800. We reveal institutional and pedagogic innovations designed to meet the training requirements of aspirant accountants and bookkeepers. We also show how the gendered male orientation of teaching institutions and instructional texts in accounting did not entirely exclude young women from acquiring desired knowledge of the accounting craft.
    Keywords: accounting history; accounting literature; education; women
    Date: 2009–03
  7. By: John R. Graham; Hyunseob Kim
    Abstract: We investigate how the length of the net operating loss carryback period affects corporate liquidity and marginal tax rates. We estimate that extending the carryback period from two to five years, as recently proposed in President Obama’s budget blueprint, would provide $19 ($34) billion of additional liquidity to the corporate sector for 2008 (2009). Our calculations imply that the benefits of the extended carryback period would be concentrated in the homebuilding, automobile, and financial industries. Extending the carryback period would increase the marginal tax rate of loss firms by more than 200 basis points on average, which all else equal would lead corporations to use an additional $8 ($10) billion of debt and reduce tax payments by another $1.2 ($1.5) billion in 2008 (2009). Overall, the tax break proposed by the Obama administration would have a significant liquidity effect on corporations suffering large losses in recent years. If the tax proposal were extended to include TARP firms, the liquidity effect would triple in size.
    JEL: G32 H25 K34
    Date: 2009–07
  8. By: Brad Badertscher (University of Notre Dame); Sharon P. Katz (Harvard Business School, Accounting and Management Unit); Sonja Olhoft Rego (University of Iowa)
    Abstract: This study investigates how private equity ownership affects corporate tax avoidance. Private equity (PE) firms have been accused of aggressively managing their own tax liabilities and those of their portfolio firms. We investigate the latter assertion based on a sample of private firms for which there is financial statement data available. We first document that firms significantly alter their tax avoidance patterns in anticipation of 'going public' and 'going private' transactions. We then find that majority PE-backed private firms engage in less book-tax nonconforming tax planning than public years; nonetheless, they exhibit substantially lower marginal tax rates. We attribute these results to the larger debt tax shields of majority-owned PE-backed firms, which reduce their need for nonconforming (i.e., more aggressive) tax strategies. Lastly, we examine how different private ownership structures (e.g., majority PE ownership vs. management-owned) affect tax planning at private firms. Our results indicate that majority-owned PE-backed firms engage in more book-tax conforming and nonconforming tax planning than other private firms. We attribute these results to the managerial sophistication and resources available to majority-owned PE-backed firms.
    Keywords: Private equity, ownership structure, tax avoidance, tax planning, tax aggressiveness, book-tax differences.
    Date: 2009–07
  9. By: Edwards, John Richard (Cardiff Business School)
    Abstract: The early modern period, which covers the sixteenth to the eighteenth centuries, saw England transformed from a relatively insignificant European nation to one of the world's leading economies. During this era a transformation in educational provision was designed to meet the needs of a changing occupational landscape. The continued focus of grammar schools and the universities on the supply of clerics and scholars ignored the educational requirements of those involved in the administration and management of entities located within both the commercial and non-profit making sectors. Against a background of increased literacy, this paper reveals that the private schools and academies of the early modern period responded to the information requirements of larger scale entities by developing a unified commercial education based on the intertwining of writing, arithmetic and double entry bookkeeping.
    Keywords: accounting history; business education; writing master
    Date: 2009–03
  10. By: Edwards, John Richard (Cardiff Business School)
    Abstract: There has been significant focus in accounting historiography on the use of occupational labels for the purpose of group identification and profe ssional trajectory in nineteenth and twentieth century Britain. The writing master was active from medieval times as the authority on calligraphic representation, while the writing master and accountant emerged as a specialist pedagogue providing the expert business knowledge required in the counting houses of business concerns that flourished during the rapid commercial expansion which took place in mercantilist Britain. Writing masters and accountants pursued occupational trajectory by developing a desirable social identity based on a range of strategies that included aligning the services they provided with national interest and projecting an image of the gentlemanly professional. Their demise as an occupational group may be attributed to factors that include internecine conflict, the increasing homogeneity of the written word and the likely pursuit by accountants of more remunerative engagements.
    Keywords: Accounting history; identity; writing master
    Date: 2009–03
  11. By: W. LAURIER; G. POELS
    Abstract: In business modelling the focus is shifting from the enterprise to the supply chain. Contemporary business modelling approaches should allow each enterprise taking part in a business network to develop its own information system and at the same time support the creation of system interoperability and information sharing amongst business partners. This paper presents a reference information model for integrating the information of supply‐chain‐wide and enterprise‐wide information systems. The model is based on the Resource‐Event‐Agent (REA) semantic accounting model. This paper also shows that the REA reference information model harmonizes the conceptualisations that underlie various types of business information systems.
    Keywords: Business ontology, business modelling, system integration, accounting, value chain, supply chain, business process
    Date: 2009–03

This nep-acc issue is ©2009 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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