nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2009‒10‒31
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Professional reasoning in expressing the auditor's opinion By Bunget, Ovidiu-Constantin; David Sobolevschi, Iulia-Maria; Petcu, Monica
  2. Accounting Discretion of Banks During a Financial Crisis By Luc Laeven; Harry Huizinga
  3. New approaches regarding business combinations By Bunea-Bontaş, Cristina Aurora; Petre, Mihaela Cosmina
  4. L’influence des evenements ulterieurs sur l’opinion de l’auditeur financier By Bunget, Ovidiu-Constantin
  5. Recent trends in top income shares in the USA: Reconciling estimates from March CPS and IRS tax return data By Richard V. Burkhauser; Shuaizhang Feng; Stephen P. Jenkins; Jeff Larrimore
  6. Issues on recognition, measurement and impairment of goodwill By Bunea-Bontaş, Cristina Aurora; Petre, Mihaela Cosmina
  7. Arguments for introducing accrual based accounting in the public sector By Bunea-Bontaş, Cristina Aurora; Petre, Mihaela Cosmina
  8. Strategic tax collection and fiscal decentralization: the case of Russia By Alexander Libman; Lars P. Feld
  9. Capital adequacy and risk management - premises for strengthening financial system stability By Bunea-Bontaş, Cristina Aurora; Lăzărică, Marinela; Petre, Mihaela Cosmina
  10. Performance measures for hierarchical organizations: Frontier analysis as a decision support tool By Aude Deville; Gary D. Ferrier; Hervé Leleu

  1. By: Bunget, Ovidiu-Constantin; David Sobolevschi, Iulia-Maria; Petcu, Monica
    Abstract: Unlike other information, assertions and conclusions made during the audit process, the auditor's opinion expressed in the report on the accuracy of the financial statements in terms of the company’s image is available to all users. The result of a series of professional judgments based on complex theoretical and practical knowledge developed within the referential framework generated by the accounting and audit standards in order to detect misstatements, typological classifications and their correction, the opinion expressed by the auditor may have significant consequences. An inadequate opinion may alter the image of the entity in relation with all stakeholders, with serious implications on the continuity of the business. To the other extreme, an inadequate opinion may encourage unsustainable actions, with severe consequences both on own activity and on third parties.
    Keywords: professional reasoning; opinion; significance; distorting
    JEL: M42
    Date: 2009–10–26
  2. By: Luc Laeven; Harry Huizinga
    Abstract: This paper shows that banks use accounting discretion to overstate the value of distressed assets. Banks' balance sheets overvalue real estate-related assets compared to the market value of these assets, especially during the U.S. mortgage crisis. Share prices of banks with large exposure to mortgage-backed securities also react favorably to recent changes in accounting rules that relax fair-value accounting, and these banks provision less for bad loans. Furthermore, distressed banks use discretion in the classification of mortgage-backed securities to inflate their books. Our results indicate that banks' balance sheets offer a distorted view of the financial health of the banks.
    Keywords: Accounting , Asset management , Asset prices , Bank accounting , Bank regulations , Banks , Financial crisis , Housing prices , Investment , Liquidity management , Real estate prices ,
    Date: 2009–09–28
  3. By: Bunea-Bontaş, Cristina Aurora; Petre, Mihaela Cosmina
    Abstract: The accounting for business combinations is a very important area, therefore it needs a high quality accounting standard that could be used for both domestic and cross-border financial reporting. IASB issued in January 2008 the revised IFRS 3 Business Combinations, which aims to help both users and preparers of the consolidated financial statements by improving the relevance, reliability and comparability of the information reported by companies around the world. This article aims to highlight few significant changes in the accounting treatment of business combinations that have arisen from the revised IFRS 3, focusing on the accounting principles surrounding the recognition and measurement of the identifiable net assets of the acquiree and any non-controlling interest in the acquiree and on the implications for calculating and measuring goodwill.
    Keywords: control; acquisition method; fair value; non-controlling interest; goodwill
    JEL: M41
    Date: 2009–05
  4. By: Bunget, Ovidiu-Constantin
    Abstract: The financial auditor is responsible for formulating and expressing an opinion on the financial statements. To this end and taking the listener to plan and define the audit approach, to perform tests of controls and tests on nouns transactions, to perform analytical procedures and tests detailed accounting balances and preparing the report audit. The conclusion of this report is represented by the views of the financial auditor. The auditor is responsible to perform audit procedures finally provide audit evidence sufficient and adequate for the fact that all events occurred before the date of the audit report is requesting the adjustment of financial statements is the presentations in the explanatory notes have been identified. Therefore, subsequent events or have no influence or impact on the auditor's opinion? It is a question whose answer we try to give you the following pages.
    Keywords: événement ultérieur; obligation contingente; preuve d’audit; opinion de l’auditeur; responsabilité
    JEL: M42
    Date: 2009–10–26
  5. By: Richard V. Burkhauser (Cornell University); Shuaizhang Feng (Princeton University and Shanghai University of Finance and Economics); Stephen P. Jenkins (University of Essex); Jeff Larrimore (Cornell University)
    Abstract: Although the majority of research on US income inequality trends is based on public-use March CPS data, a new wave of research using IRS tax return data reports substantially higher levels of inequality and faster growing trends. We show that these apparently inconsistent estimates are largely reconciled if the inequality measure and the income distribution are defined in the same way. Using internal CPS data for 1967–2006, we closely match IRS data-based estimates of top income shares reported by Piketty and Saez (2003). Our results imply that any inequality increases since 1993 are concentrated among the top 1 percent of the distribution.
    Keywords: US Income Inequality, Top income shares, March CPS, IRS tax return data.
    JEL: D31 C81
    Date: 2009
  6. By: Bunea-Bontaş, Cristina Aurora; Petre, Mihaela Cosmina
    Abstract: Investors and their advisers have to asses how the activities of the acquirer and its acquired business develop following a business combination. Due to a complexity of business activities this is a challenging exercise. Certainly, one of the major challenge concerns the goodwill. Is it an asset? How can it be measured? Which are the implications on fair image of financial position and performances? Therefore, the accounting treatment of goodwill involves applying professional judgment in terms of meeting criteria for its recognition as an intangible asset, but also related to the initial measurement and its impairment. IFRS 3 (Revised) “Business Combinations” will create significant changes in accounting for goodwill, and further more, for business combinations.
    Keywords: goodwill; fair value; impairment loss; full goodwill; non-controlling interest
    JEL: M41
    Date: 2009–05
  7. By: Bunea-Bontaş, Cristina Aurora; Petre, Mihaela Cosmina
    Abstract: From a long time, accounting for public entities has been on a cash basis, with no change until the '80s when it was considered appropriate that these should move closer to commercial accounting principles practiced in the private sector. Demands for better accountability by governments and by public sector managers are being heard around the world as the public realizes that living on credit is not sustainable for individuals and the same principle applies to governments. The paper highlights the main characteristics of accrual accounting, arguments and counter-arguments on this reform and particular aspects of Public Accountancy reform in Romania through introduction of accounting-based accrual, in order to facilitate better planning, financial management and decision making in government as well as an accepted way of measuring the economy, efficiency and effectiveness of public policies.
    Keywords: public sector; accrual-based accounting; public accountancy reform in Romania
    JEL: M41
    Date: 2009–05
  8. By: Alexander Libman (University of Mannheim); Lars P. Feld (University of Heidelberg)
    Abstract: In a centralized federation, where tax rates and taxation rules are set by the federal government, manipulating the thoroughness of tax auditing and the effectiveness of tax collection could be attractive for regional authorities because of a variety of reasons. These range from tax competition to principal-agent problems, state capture and benefits of fiscal equalization. In this paper we discuss strategic tax auditing and collection from the perspective of fiscal federalism and test for strategic tax collection empirically using data of the Russian Federation. Russia’s regional authorities in the 1990s have always been suspect of tax auditing manipulations in their favor. However, in the 2000s increasing bargaining po¬wer of the centre seems to induce tax collection bodies in the regions to manipulate tax auditing in favor of the federal centre. Our findings confirm the existence of strategic tax collection for the Yeltsin period after exclusion of outliers; the results for the Putin period are however rather ambiguous.
    Keywords: fiscal federalism, tax arrears, transition economies
    JEL: H26 H77
    Date: 2009
  9. By: Bunea-Bontaş, Cristina Aurora; Lăzărică, Marinela; Petre, Mihaela Cosmina
    Abstract: In the last decades, we have witnessed the progressive integration of European financial system, as a result of the cumulative effect of markets' liberalization, innovation and globalisation, and of harmonization of the regulations and implementation of financial reforms by the EU Member States. In this context, increased risk of financial instability necessarily requires the development of standards and codes of best practices in order to improve financial system integrity and stability, and to insure the health of the global banking and financial markets. From this perspective, the Basel II Accord represents a true revolution, aiming the improvement of the consistency of capital regulations internationally and better operational risk management practices. As a member of the EU, Romania is currently through the stages of implementation of Basel II, starting 1st of January 2008. As a central bank, NBR main objectives are: to adapt national legislation; to coordinate the efforts of credit institutions to develop new strategies regarding solvency, capital adequacy and measurement system for each risk category; to impose the disclosure requirements for financial reports and to adapt the IT system.
    Keywords: Basel II Accord; capital adequacy; financial system stability; minimum capital requirements; risk management; risk-weighted assets
    JEL: G28 F33 G21
    Date: 2009–06–30
  10. By: Aude Deville (LEG-FARGO, IAE, University of Bourgogne); Gary D. Ferrier (Walton College of Business, University of Arkansas); Hervé Leleu (LEM-CNRS (UMR 8179), IÉSEG School of Management)
    Abstract: We extend the standard frontier efficiency models (data envelopment analysis [DEA] and stochastic frontier analysis [SFA]) by allowing the “decision making units” (DMUs) whose performances are assessed to consist of two different levels within hierarchical organizations. Generally, the lower level unit is responsible for “operations;” while higher level units are assumed to make “strategic” decisions. Our primary contribution in this paper is thus to extend the use of frontier efficiency models to assess each level performance with relevant technical and allocative inefficiency measures. We illustrate our approach using DEA applied to data from a sample of 1,585 branches of a major French bank. A second contribution of the paper is to explicitly relate the efficiency to differences in the operating environments and the sizes of the bank branches. We believe that the simple, easy to implement method we introduce can serve as a valuable component of a “balanced score card” approach to benchmarking performance within hierarchical settings such as a banking network.
    JEL: M40 G21 C43
    Date: 2009–01

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.