nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2011‒07‒21
eight papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Design of Capital Income Taxation: Reflections on the Mirrlees Review By Keuschnigg, Christian
  2. Tax Competition Among Local Governments: Evidence from a Property Tax Reform in Finland By Teemu Lyytikäinen
  3. The Tobin Tax A Review of the Evidence By Neil McCulloch; Grazia Pacillo
  4. Auditors and the supervision of retail finance: evidence from two small-sized building societies, 1976-1978 By Batiz-Lazo, Bernardo; Noguchi, Masayoshi
  5. Questioning Financial Indicators of Civil Society Development By MANCE, Davor; VAŠIČEK, Davor
  6. Land Taxation in China: Assessment of Prospects for Politically and Economically Sustainable Reform By Denis Nitikin; Chunli Shen; Qian Wang; Heng-fu Zou
  7. The Basis of Valuations for Secured Commercial Property Lending in the UK By Neil Crosby; Cathy Hughes
  8. Audits or Distortions: The Optimal Scheme to Enforce Self-Employment Income Taxes By Eduardo Zilberman

  1. By: Keuschnigg, Christian
    Abstract: This commentary reflects on the recommendations of the Mirrlees Review on tax reform with a special focus on capital income taxation. Regarding the alternatives of moving to a consumption based tax system, the commentary discusses the relative merits of choosing an ACE system (allowance for corporate equity) rather than a cash-flow tax on the company level. It reviews the arguments in favour of full elimination of tax on the normal return to savings at the personal level which contrasts with alternative tax reform proposals recommending a positive but low and flat tax rate on personal capital income. It also discusses how existing computational models would have to be extended for a meaningful quantification of the gains and costs of implementing a tax reform along the lines of the Mirrlees Review.
    Keywords: Fundamental tax reform, consumption based tax system
    JEL: H21 H23 H24 H25
    Date: 2011–07
  2. By: Teemu Lyytikäinen
    Abstract: This paper uses a Finnish policy intervention to study tax competition among local governments. Changes in the statutory lower limits to the property tax rates are used as a source of exogenous variation to estimate the responses of municipalities to tax rates in their neighbouring municipalities. I do not find evidence of interdependence in property tax rates among Finnish municipalities. The results are in contrast to the earlier empirical literature, using data from other countries, that has mainly found positive interdependence in tax rates. I compare the causal estimates based on the policy change to the commonly used Spatial Lag estimates and Spatial Instrumental Variables estimates, which are based on highly restrictive assumptions. The comparisons suggest that the standard spatial econometrics methods may have a tendency to overestimate the degree of interdependence in tax rates.
    Keywords: Property tax, tax competition, fiscal interaction, instrumental variables, spatialeconometrics
    JEL: H20 H71 H77
    Date: 2011–06
  3. By: Neil McCulloch (Institute of Development Studies (IDS), University of Sussex); Grazia Pacillo (Department of Economics, University of Sussex)
    Abstract: The debate about the Tobin Tax, and other financial transaction taxes (FTT), gives rise to strong views both for and against. Unfortunately, little of this debate is based on the now considerable body of evidence about the impact of such taxes. This review attempts to synthesise what we know from the available theoretical and empirical literature about the impact of FTTs on volatility in financial markets. We also review the literature on how a Tobin Tax might be implemented, the amount of revenue that it might realistically produce, and the likely incidence of the tax. We conclude that, contrary to what is often assumed, a Tobin Tax is feasible and, if appropriately designed, could make a significant contribution to revenue without causing major distortions. However, it would be unlikely to reduce market volatility and could even increase it.
    Keywords: Tobin tax, financial transaction taxes, volatility, revenue, incidence, feasibility
    JEL: G15 G18 H22 H27
    Date: 2010–12
  4. By: Batiz-Lazo, Bernardo; Noguchi, Masayoshi
    Abstract: This study adds to the accounting history literature by looking at features common to major defalcations in two small-sized building societies (namely the Wakefield and the Grays). These features were the dominance of an individual over a building society’s systems, and poor systems of internal control and supervision. Because they failed to recognise the significance of these factors sufficiently, auditors of both societies were criticised for failing to discharge their duties as expected under the Building Societies Act 1960 (BSA60) (which had introduced a new auditing regime by requiring the auditors to examine whether the directors of a society complied with its requirement to establish and maintain a system of internal control and, if not, to report thereon). The cases of the Wakefield and the Grays were a turning point in the supervision of retail financial intermediaries. Prior to them the Chief Registrar of Friendly Societies (CRFS) had adopted a reactive approach to supervision, which effectively delegated the monitoring of the societies to external auditors. After the defalcations were uncovered, they showed there was a lack of productive communication between the Registry and external auditors. As a result, it was felt there was a need to reform and adopt a proactive approach to supervision of the societies under which the CRFS was to directly examine the quality of the auditor’s work. The professional accountants, as represented by the Institute of Chartered Accountants of England and Wales, initially resisted such reform. But ultimately, accountants could not help but to accept it.
    Keywords: corporate governance (the system of internal control); building societies; the Chief Registrar of Friendly Societies (CRFS); the Treasury; supervision of retail financial intermediaries; delegated monitoring; UK; accounting history; financial auditing
    JEL: N8 M41 N2 G21
    Date: 2011–07
  5. By: MANCE, Davor; VAŠIČEK, Davor
    Abstract: Until the introduction of the full accrual accounting concept in 2008, the system of governmental and private non-profit organizations in Croatia was very inconsistent, but nevertheless, withstood for a long number of years. Most of the changes were brought in for the purpose of adjusting our legislative regulations to the Acquis Communautaire. The Croatian accession to the European Union was used to implement reforms in various sectors, and also in the accounting for non-profit organizations. On January 1ST, 2008, a new accounting system was introduced, based on the application of the full accrual concept of revenues and expenses. As a result, the divergence of accounting systems for governmental and private non-profit organizations was significantly reduced. The reform results suggest that it is justified and reasonable, for all non-profit organization groups, to apply the same internationally comparable and acceptable rules of measurement and evaluation, recognition, and economic classification of revenues and expenses.
    Keywords: accrual accounting concept; Civil Society Development; Financial Indic ators
    Date: 2011
  6. By: Denis Nitikin (The World Bank); Chunli Shen (University of Maryland); Qian Wang (San Francisco State University); Heng-fu Zou (Central University of Finance and Economics CEMA; Wuhan University IAS; Peking University; China Development Bank)
    Abstract: The emerging land-related unrest in China poses a pressing challenge on the legitimacy of the government. Through the perspective of good governance, the paper examines the role of land in government financing and its economic and political cost, as well as the erosion of government¡¯s credibility and its negative impact on private and collective property rights. The paper emphasizes the recent upward trend in land-related unrest as a consequence of abuses by local governments on land-source revenues. Our special concern rests on the institution of collective property which is slowly emerging from the shadow of the former state property in the course of economic transition. Collective property right could be a useful legal and economic institution but must receive political support to exist alongside with private property.
    Keywords: land tax, property tax, land-related revenue, land administration
    JEL: H20 H27
    Date: 2011
  7. By: Neil Crosby (School of Real Estate & Planning, Henley Business School, University of Reading); Cathy Hughes (School of Real Estate & Planning, Henley Business School, University of Reading)
    Abstract: In the context of the financial crash and the commercial property market downturn, this paper examines the basis of valuation used in the UK commercial property lending process.  Post-crisis there is discussion of countercyclical measures including the monitoring of asset prices; however there is no consideration of a different approach to property valuation.  This paper questions this omission, given the role that valuations play in the bank regulatory process.  The different bases of valuation available to lenders within International Valuation Standards are identified as Market Value (MV), Mortgage Lending Value (MLV) and Investment Value (IV), with MV being the most used in the UK.  Using the different bases in the period before the financial crisis, the UK property market is modelled at a national office, retail and industrial/warehouse sector level to determine the performance of each alternative valuation basis within the context of counter-cyclical pressures on lending.  Both MLV and IV would have produced lower valuations and could have provided lenders with tools for more informed and prudent lending.  The paper concludes by recognising some of the practical issues involved in adopting the different bases for the bank lending role but recommends a change to IV.
    Keywords: Commercial property valuation, secured lending, Mortgage lending Value, Market Value, Investment Value
    Date: 2011
  8. By: Eduardo Zilberman (Department of Economics PUC-Rio)
    Abstract: I investigate the optimal auditing scheme for a revenue-maximizing tax-collection agency that observes not only reported prots, but also the level of employment at each firm. Each firm is owned by a single entrepreneur whose managerial ability is random. The optimal auditing scheme is discontinuous and non-monotone in ability. In intermediate audit costs, less-productive entrepreneurs face auditing probabilities that increase in ability, whereas the ablest ones are not audited. I argue that if the optimal auditing scheme were adopted in practice, net revenue collected from nonfarm sole proprietors would increase by at least 59 percent.
    Date: 2011–07

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