nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2011‒06‒04
nine papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Research Project on the Design for the Optimum Disclosure System Volume 1: The Introduction of IFRS and Design of an Optimal Disclosure System (Japanese) By KOGA Chitoshi; KAGAYA Tetsuyuki; MUKAI Ichiro; URASAKI Naohiro; UMEHARA Hidetsugu
  2. Research Project on the Design for the Optimum Disclosure System Volume 4: Reinforcing audit quality through considering implications of evolving nature of IFRS (Japanese) By IGARASHI Norio; URASAKI Naohiro; MACHIDA Yoshihiro
  3. Funding in Public Sector Pension Plans - International Evidence By Eduard Ponds; Clara Severinson; Juan Yermo
  4. The Significance and Problems of Tax Treaty Arbitration: An analysis of the new Japan-Netherlands tax treaty (Japanese) By KOTERA Akira
  5. Research Project on the Design for the Optimum Disclosure System Volume 3: The Status quo and Problems with the Internal Control Report System (Japanese) By HASHIMOTO Takashi; MATSUMOTO Yoshinao
  6. Research Project on the Design for the Optimum Disclosure System Volume 5: An evaluation and future direction of quarterly disclosures in Japan (Japanese) By KAGAYA Tetsuyuki; NAKANO Takayuki; MATSUMOTO Yoshinao; MACHIDA Yoshihiro
  7. Research Project on the Design for the Optimum Disclosure System Volume 2: Sustainable Growth of Japanese Companies and the Direction of Non-financial Information Disclosure (Japanese) By KOKUBU Katsuhiko; SAKAUE Manabu; KOGA Chitoshi; KONISHI Noriyuki; HISAMOCHI Eiji; YAO Jun; SHIMADA Yoshinori
  9. Life-Cycle Unemployment, Retirement and Parametric Pension Reform By Keuschnigg, Christian; Fisher, Walter

  1. By: KOGA Chitoshi; KAGAYA Tetsuyuki; MUKAI Ichiro; URASAKI Naohiro; UMEHARA Hidetsugu
    Abstract: In applying International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), a disclosure system that consists of four complementary subsystems such as financial information, nonfinancial information, internal control, and auditing subsystems should be designed to match both the business structure of Japan and actual behavior of Japanese enterprises. This paper first discusses the influence of the application of IFRS on Japanese enterprises from two aspects: the external aspects, namely, the accounting environment surrounding Japanese enterprises, and internal aspects, namely, the calculation of profits and the disclosure issues inside enterprises. Second, this paper points out the necessity of designing an effective disclosure system based on the complementary relationship between financial information, nonfinancial information, internal control, and auditing subsystems. This disclosure system needs to take into consideration the characteristics of Japanese-style business, which attaches great importance to maintaining long-term and stable relationships. This paper also testifies that the convergence with IFRS in Japan does not necessarily lead to an improvement in value relevance of accounting information. On the other hand, accounting treatments that can improve the transparency of income information are increasingly demanded. Lastly, based on the aforementioned theoretical and empirical research results, this paper outlines the way in which IFRS should be introduced in order to contribute to the sustainable development of Japanese enterprises.
    Date: 2011–03
  2. By: IGARASHI Norio; URASAKI Naohiro; MACHIDA Yoshihiro
    Abstract: In Japan, the consolidated financial statements that are prepared in accordance with IFRS are permitted for those public companies that voluntarily apply IFRS from the fiscal year ending March 31, 2010. The issue of compulsory application to IFRS by public companies, as defined in the law, is to be judged and decided in 2012. Major characteristics of IFRS, among other things, are principles-based standards requiring the exercise of judgment of accounting standards and minimum application guidance, and are based on fair value accounting methods, including the application of present value that is derived by using future cash flow estimates. These factors involve extensive accounting estimates, complex assumptions, and uncertainty, all to be determined by enterprise management.<br /><br />Under these conditions, we discuss the framework of audit quality, which underlies the IFRS audit, as well as some other issues to be considered for the IFRS audit, such as audit judgment, fair value and auditability, as well as the global enforcement mechanism.
    Date: 2011–03
  3. By: Eduard Ponds; Clara Severinson; Juan Yermo
    Abstract: Most countries have separate pension plan for public sector employees. The future fiscal burden of these plans can be substantial as the government usually is the largest employer, pension promises in the public sector tend to be relatively generous, and future payments have to be paid out directly from government revenues (pay-as-you-go) or by funded plans (pension funds) which tend to be underfunded. The valuation and disclosure of these promises in some countries lacks transparency, which may be hiding potentially huge fiscal liabilities that are being passed on to future generations of workers. In order to arrive at a fair comparison between countries regarding the fiscal burden of their DB public sector pension plans, this paper gathers more evidence on public sector pension plans regarding the type of pension promise and quantifies the future tax burden related to these pension promises. The reported liabilities are recalculated using both a fair value approach (local market discount rates) and a common, fixed discount rate across all countries which reflects projected growth in national income. We also estimate for a number of plans from a sample of OECD countries the size of the net unfunded liabilities in fair value terms as of the end of 2008. This fiscal burden can also be interpreted as the implicit pension debt in fair value terms.
    JEL: H55 H6 H7 H75 H83
    Date: 2011–05
  4. By: KOTERA Akira
    Abstract: I analyze the arbitration clause of the new Japan-Netherlands tax treaty, which is the first instance for Japan to adopt an arbitration clause in its tax treaties. Disputes arising from tax treaties are typically settled through a mutual agreement procedure. Even so, the history of tax treaty arbitration is not new, the first being the Ireland-UK tax treaty of 1926. Adoption of an arbitration clause in the Japan-Netherlands tax treaty appears to have been prompted by the adoption of such clause in the 2008 OECD model tax treaty.<br /><br />The most important feature of the arbitration clause in the Japan-Netherlands tax treaty is that arbitration is designed as part of the mutual agreement procedure. Only by designing arbitration as such can the basic nature of the mutual agreement procedure be maintained, whereby a dispute settlement is an intergovernmental process and an agreement reached between the competent authorities of the two countries has a domestic effect.<br /><br />It should be noted that the arbitration procedure under the Japan-Netherlands tax treaty has three problematic points: transparency, rules for treaty interpretation, and control over arbitration. First, regarding transparency, at least arbitration decisions—which are in principle treated as confidential under the treaty—should be made public. Second, rules for treaty interpretation are defined as part of the arbitration procedure and the relevant provisions are set forth—not in the new tax treaty itself—but in the implementing agreement concluded along with the treaty. However, such rules should be provided for in the treaty itself, which is an official legal document duly endorsed by the parliaments of both contracting states. Third, regarding control over arbitration, the current system where domestic courts of both contracting states are given the control function is inappropriate. If any organization or body is to exercise control over arbitration, that function must be fulfilled by a separate arbitration committee. It is also possible not to prepare a control system.<br /><br />Lastly, if we follow the OECD model tax treaty, we should not adopt it unconditionally but only after necessary revisions are made in view of conditions such as the national legal systems of the contracting states.
    Date: 2011–03
  5. By: HASHIMOTO Takashi; MATSUMOTO Yoshinao
    Abstract: The Internal Control Report System (herein after System) was introduced in Japan in the fiscal years beginning on or after April 1, 2008, and listed companies have therefore experienced three years of compliance reporting based on the new internal control reporting requirements. In this paper, we assess the implementation of the internal control requirements, wherein we show that the Japanese word used to match the English word "material weakness" causes an unnecessary burden. Thus far, considerable efforts have been made to improve the effectiveness and efficiency of the System. The Business Accounting Council is currently working on a review of the System in order to make mid-course corrections to the reporting and auditing components of an internal control over financial reporting. In December 2010, the BAC issued an exposure draft of the revised Standards and Practice Standards for Management Assessment and Audit concerning Internal Control over Financial Reporting, which proposed to give the listed companies, especially smaller companies, considerable flexibility in determining how to implement the internal control requirements. The exposure draft also proposes to change the aforementioned Japanese word that is used to match the English word "material weakness." With the age of IFRS near at hand, the revised standards are expected to enhance the effectiveness and efficiency of the System.
    Date: 2011–03
  6. By: KAGAYA Tetsuyuki; NAKANO Takayuki; MATSUMOTO Yoshinao; MACHIDA Yoshihiro
    Abstract: The objective of this research is to examine the benefits and costs of quarterly disclosures and to accumulate empirical evidence for improving them. In particular, this research focuses on the information usefulness of quarterly disclosures, earnings management in the quarterly financial results, and the consciousness or activity of the related stakeholders (corporate managers, auditors, and analysts) to the quarterly disclosures.<br /><br />The results are as follows: First, quarterly earnings announcements are value-relevant based on our examination of stock price variability around quarterly earnings announcements as compared to variability observed in other periods. Second, quarterly disclosures can reveal the earnings management by information preparers, and the quarterly reports or reviews that are in accordance with the Financial Instruments and Exchange Act (required since 2008) are less influenced by management or the information preparers. Third, the survey to the people in charge of finance and accounting shows that the workload of disclosing quarterly financial reports according to the Financial Instruments and Exchange Act is excessive. Costs of disclosing the quarterly statements in accordance with the adoption of IFRS could increase since the new accounting procedures can increase. We need to examine the benefits of quarterly disclosure from a wide variety of perspectives, share the evidence in terms of benefits and costs with related stakeholders, and organize their roles in the disclosure systems, such as regulated disclosures according to laws, the stock exchanges, and investor relations.
    Date: 2011–03
  7. By: KOKUBU Katsuhiko; SAKAUE Manabu; KOGA Chitoshi; KONISHI Noriyuki; HISAMOCHI Eiji; YAO Jun; SHIMADA Yoshinori
    Abstract: For quite some time there has been a debate surrounding the issue requiring companies to disclose not only financial information but also non-financial information, as shown in recent efforts for enhanced business reporting (EBR). This discussion paper explores non-financial information in three aspects: social and environmental information, intellectual capital information, and risk information, and it also examines the extent and reasons for the disclosure of non-financial information. In addition, the question about the media is also discussed with consideration to the trend for integrated reporting and XBRL. Ultimately, non-financial information should fuse with financial information and evolve to become integrated reporting. XBRL can only realize its potential if both non-financial information and financial information are integrated. However, there are many obstacles for realizing integrated reporting at one time. Therefore, to stimulate a change in investor behavior and company behavior, as argued by some international organizations such as IIFC, there is an urgent demand for extended reporting that integrates information on sustainability and information on intellectual capital as a source of company competitive advantage. For such non-financial information, there is a necessity to discuss questions related to an expansion in management's disclosure responsibility, as well as the corresponding judgment in auditing. There is also a necessity to discuss questions concerning how to reduce the cost of auditing and how to construct an assurance system that helps to improve the reliability of information and to limit the overextension of non-financial information.
    Date: 2011–03
  8. By: Olivier Vidal (GREG - CRC - Groupe de recherche en économie et en gestion – Centre de recherche en comptabilité - Conservatoire National des Arts et Métiers (CNAM))
    Abstract: In asserting that the number of firms reporting small profits is abnormally high, thus suggesting that earnings management has taken place, accounting researchers assume that the distribution of reported earnings should be smooth for unmanaged earnings. This has never in fact been demonstrated. This article seeks to confirm this assumption through a laboratory experiment, and also sets out to identify the general distribution pattern to be expected for unmanaged earnings. Normal distribution does not appear to be a good fit. The study's results also highlight the existence of downward management of earnings by firms with higher-than-average profits.
    Keywords: Earnings management, earnings distribution, experiment, accounting threshold.
    Date: 2010–07–08
  9. By: Keuschnigg, Christian; Fisher, Walter
    Abstract: This paper investigates the consequences of pension reform for life-cycle unemployment and retirement. We find that (i) improving actuarial fairness in pension assessment not only boosts old age participation but also reduces unemployment among prime age workers and raises welfare; (ii) strengthening the tax benefit link boosts life-cycle labor supply on all margins and welfare; (iii) excluding unemployment benefits from the pension assessment base reduces unemployment, encourages later retirement and boosts efficiency; and (iv) extending the calculation period favors employment of young workers, might possibly lead to more unemployment among older ones, encourages postponed retirement and most likely yields positive welfare gains.
    Keywords: Pensions, tax benefit link, retirement, unemployment.
    JEL: H55 J26
    Date: 2011–05

This nep-acc issue is ©2011 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.