nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2011‒11‒28
fourteen papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Labor Earnings Respond Differently to Income-Tax and to Payroll-Tax Reforms By Lehmann, Etienne; Marical, François; Rioux, Laurence
  2. Taxing the financial sector in the European Union By Danuše Nerudová
  3. Redistribution through tax evasion By Adam, Antonis; Kammas, Pantelis
  4. From IRAP to CBIT: Tax distortions and redistributive effects By Manzo Marco; Monteduro Maria Teresa
  5. Evaluation of the Risks of Collective Dominance in the Audit Industry in France By Billard, Olivier; Ivaldi, Marc; Mitraille, Sébastien
  6. Multi entry framework for financial and risk reporting By Staszkiewicz, Piotr W.
  7. USERS’ PERCEPTIONS ON THE USEFULNESS OF THE SMES’ ACCOUNTING INFORMATION: MALAYSIAN CASE By Dr. Nahariah Jaffar; Zarehan Selamat; Norhazlin Ismail; Hamsatulazura Hamzah
  8. The accounting regulation in the French context: The case of corporate groups (1921-1943) By Didier Bensadon
  9. Beginnings of financial reporting and premises of consolidation of accounts in French aluminium industry,1921-1939 By Didier Bensadon
  10. How R&D and tax incentives influence economic growth: Econometric study for the period between 1995 and 2008 of EU-15 By Paula Faria; Francisco Vitorino da Silva Martins; Elísio Fernando Moreira Brandão
  11. The advent of corporate limited liability in Prussia 1843 By Ilgmann, Cordelius
  12. Income Adequacy in Retirement: Accounting for the Annuitized Value of Wealth in Canada By Baldwin, John R.<br/> Frenette, Marc<br/> Lafrance, Amélie<br/> Piraino, Patrizio
  13. G-20 Reforms of the International Monetary System: An Evaluation By Edwin M. Truman
  14. A Cost-Benefit Analysis of Basel III: Some Evidence from the UK By Meilin Yan; Maximilian J. B. Hall; Paul Turner

  1. By: Lehmann, Etienne (CREST-INSEE); Marical, François (INSEE); Rioux, Laurence (CREST-INSEE)
    Abstract: We estimate the responses of gross labor earnings with respect to marginal and average net-of-tax rates in France over the period 2003-2006. We exploit a series of reforms to the income-tax and the payroll-tax schedules that affect individuals who earn less than twice the minimum wage. Our estimate for the elasticity of gross labor earnings with respect to the marginal net-of-income-tax rate is around 0.2, while we find no response to the marginal net-of-payroll-tax rate. The elasticity with respect to the average net-of-tax rates is not significant for the income-tax schedule, while it is close to -1 for the payroll-tax schedule. A plausible explanation is the existence of significant labor supply responses to the income-tax schedule, combined with a short-term rigidity of the hourly taxable wage (i.e. the gross wage minus payroll taxes), casting doubts about public finance analysis that assumes perfect competition on the labor market. Finally, the effect of the net-of-income-tax rate seems to be driven by labor supply participation decisions, in particular those of females.
    Keywords: labor earnings, payroll tax, income tax
    JEL: H24 H31 J22 J38
    Date: 2011–11
  2. By: Danuše Nerudová (Department of Accounting and Taxes, FBE MENDELU in Brno)
    Abstract: The recent financial crises has revealed the need to improve and ensure the stability of the financial sector to reduce negative externalities, to ensure fair and substantial contribution of the financial sector to the public finances and the need to consolidate public finance. The aim of the paper is to discuss the possibility of the financial sector taxation and to suggest the possible candidate suitable for the implementation on the EU level. Financial transaction tax represents the tool suitable mainly on global level, for only in that case enables to generate sufficient financial resources. From EU point of view is considered as less suitable, for it bears the risk of reallocation. Therefore the introduction of financial activities tax on EU level is considered as a better solution for the financial sector taxation in the EU, for financial sector is exempted from value added tax. However, the approval of directive in the area of taxation requires unanimity of all EU member states, which means that final solution will be also political question.
    Keywords: financial transaction tax, financial activities tax, tax base, crises, financial sector
    JEL: H25
    Date: 2011–11
  3. By: Adam, Antonis; Kammas, Pantelis
    Abstract: Using a simple model of income redistribution, we show that the government may use tax evasion as a way to redistribute income from the non- evaders to evaders. This will result then to a negative association between income inequality and per capita transfers and inefficiently high taxes.
    Keywords: redistribution; inequality; tax evasion
    JEL: H10 H23 H26
    Date: 2011–11–16
  4. By: Manzo Marco; Monteduro Maria Teresa
    JEL: E32 E62 H25 H32
    Date: 2011–11
  5. By: Billard, Olivier (Bredin Prat); Ivaldi, Marc (Toulouse School of Economics); Mitraille, Sébastien (Toulouse Business School)
    Abstract: The financial crisis drew attention to the crucial role of transparency and the independence of financial certification intermediaries, in particular, statutory auditors. Now any anticompetitive practice involving coordinated increases in prices or concomitant changes in quality that impacts financial information affects the effectiveness of this intermediation. It is therefore not surprising that the competitive analysis of the audit market is a critical factor in regulating financial systems, all the more so as this market is marked by various barriers to entry, such as the incompatibility of certification tasks with the preparation of financial statements or consulting, the expertise on (and the ability to apply) international standards for the presentation of financial information, the need to attract top young graduates, the prohibition of advertising, or the two-sided nature of this market where the quality of financial information results from the interaction between the reputation of auditors and audited firms. Against this backdrop, we propose a legal and economic study of the risks of collective dominance in the statutory audit market in France using the criteria set by Airtours case and, in particular, by analyzing how regulatory obligations incumbent on statutory auditors may favour the appearance of tacit collusion. Our analysis suggests that nothing prevents collective dominance of the auditors of the Big Four group in France to exist, which is potentially detrimental to the economy as a whole as the audit industry may fail to provide the optimal level of financial information.
    Keywords: Collective dominance ; Airtours criteria; Audit industry
    Date: 2011–05–18
  6. By: Staszkiewicz, Piotr W.
    Abstract: Author challenges one of the oldest accounting double bookkeeping rules, used since 1494, and proposes instead application of the quadruple accounting entry. He presents the concept of the multiply accounting entry for the risk financial statements and risk management. The development gap concept is described and introduces a simplified entry and reporting example. Model is illustrated with a number of financial-risk statements and attributes including the journal entries. The potential completion edge for users is weighted against costs and benefits.
    Keywords: Audit; CRD; COREP; FINREP; IFRS; BASEL; NUK; CRD; reporting; financial accounting; double-entry; risk management; fair value; conceptual framework; accord;
    JEL: M41 K23 G32
    Date: 2011–11–21
  7. By: Dr. Nahariah Jaffar (Faculty of Management, Multimedia University, Cyberjaya, Malaysia); Zarehan Selamat; Norhazlin Ismail; Hamsatulazura Hamzah
    Abstract: This study investigates the perceived usefulness of selected accounting information presented in the SMEs’ financial statements. Mailed questionnnaires were sent to SMEs’ owner and loan officers in Malaysia. The findings showed that the SMEs’ owners and loan officers have substantially similar views on the usefulness of the accounting information. In addition, this study found that type of business organisation, academic qualification, time spend in reading the financial statement, level of understanding of the financial statements and awareness about financial reporting regulation do not have significant relationship with the SMEs’ owners’ perceptions on the usefulness of the accounting information. On the other hand, for the loan officers, experience in assessing SMEs’ financial statements was found to have a significant relationship with the loan officers’ perceptions on the usefulness of the accounting information, while accouting expertise, year in position, awareness about financial reporting regulation are not. The results of this study may provide awareness to the SMEs’ managers on the informational needs of the users of their financial statements
    Keywords: SMEs, financial reporting, usefulness, accounting information
    JEL: M0
    Date: 2011–10
  8. By: Didier Bensadon (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)
    Abstract: The aim of this paper is to shed light on the role of legislators and lawyers in establishing accounting regulations concerning corporate groups in France during the 1930s and the Occupation (1940 - 1944). A review of bills proposing accounting regulation shows that no significant progress was to be achieved. Furthermore, while some lawyers called for a comprehensive regulation of corporate groups, no such progress was made during the inter-war period. Ultimately it's the Vichy government which introduced the first regulations on accounting subsidiaries in the French Plan Comptable and limited the reciprocal shareholdings in the Act of March 4, 1943.
    Keywords: Accounting history, corporate groups, accounting regulation, inter war period, Occupation period, France
    Date: 2011–09–12
  9. By: Didier Bensadon (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)
    Abstract: The expansion of groups of companies during the inter-war years is one of the most profound transformations in the structure of French capitalism. Studies in economic history have shown the importance of the subsidiary creation phenomenon in relation to Compagnie Générale d'Electricité, Energie industrielle or Schneider . By contrast, these studies are less interested in the specific arrangements for auditing subsidiaries and managing Company Groups. This article seeks to show how and why the directors of Alais, Froges et Camargue - The largest French company in the aluminum sector- established specific audit measures from the 1920s onwards. This research is essentially based on the company's archives (annual reports, general organisation chart and memoranda from the general secretariat). Even if the results published in the annual reports should be treated with the utmost caution, in particular owing to the absence of accounting regulation in France in the inter-war years, they remain essential for assessing the important position of subsidiaries and main shareholdings in assets. The scope of the subsidiary creation phenomenon, which is behind the establishment of specific controls, is highlighted. This trend, far from being linear, is strongly influenced by the economic and political situation. The size of the Group's growth gave rise to two types of requirements for the directors of Alais, Froges et Camargue, namely to audit the subsidiaries and to measure the group's net cash flow. The response to the need for auditing the subsidiaries was provided by the introduction of financial reporting from 1921. Faced with the increasing number of subsidiaries and main shareholdings held by Alais, Froges et Camargue, this control mechanism was to be strengthened in 1931. Furthermore, the necessity of measuring the Group's net cash flow led the directors in 1927 to draw up a financial statement whose conceptual foundations were based on those of the consolidation of accounts
    Keywords: financial reporting, accounting history, group accounts, French aluminium industry, shareholdings.
    Date: 2011–11–03
  10. By: Paula Faria (Faculdade de Economia, Universidade do Porto); Francisco Vitorino da Silva Martins (Faculdade de Economia, Universidade do Porto); Elísio Fernando Moreira Brandão (Faculdade de Economia, Universidade do Porto)
    Abstract: Setting targets to increase the levels of R&D, a component that is present in the political and economic agendas of the European Member States with the promotion of active tax policies, suggests that it is possible for R&D to cause an impact on economic growth. This research work aims at understanding the influence of the evolution of R&D expenditures, as well as the influence of tax incentives on economic growth. For that, a panel data of 15 European countries, during the period between 1995 and 2008, was used. The econometric study confirms the foreseen importance, both in this study and in the literature, of the countries’ R&D efforts and their impact on economic growth. The positive effect of tax incentives on economic growth, combined with R&D levels, is highlighted and demonstrated, thus confirming a strategic orientation towards tax policies followed by the national institutions.
    Keywords: R&D, tax incentives, economic growth, econometric analysis in panel data
    JEL: C23 H20 H3
    Date: 2011–11
  11. By: Ilgmann, Cordelius
    Abstract: Corporate limited liability has a long and contentious history, stretching back to the mid-19th century and beyond. Initially being hailed as one of the decisive legal invention of our age, recently scholars have highlighted the negative effects of curtailing liability. This in turn has inspired research in the historical origins of liability. While the debate on the adoption of limited liability for joint stock companies in Britain and the United States in the 19th century is comparatively well documented, little is known about the contemporary German debate. Thus, this paper aims to shed light on the debate within the Prussian Government which surrounded the Stock Corporation Act of 1843. Drawing on primary sources of the debate within the Prussian administration in the course of the legislative process, it tries to examine whether limited liability was indeed seen as a prerequisite for the existence of joint-stock companies as its supporters claim. I find that in line with British and American experience limited liability was not universally seen as a necessary condition for incorporated joint-stock companies. In fact, the course of the debate suggests that limited liability was finally introduced because the administration wrongly assumed that joint stock companies always comprised a large number of shareholders with little equity each, being obviously unaware of the possibility of joint stock companies being dominated by large shareholders and institutional investors. Moreover, limited liability for shareholders was regarded as being similar to that of passive sleeping partners, a justification that seems problematic in the light of today's virtually all powerful institutional investors. --
    Date: 2011
  12. By: Baldwin, John R.<br/> Frenette, Marc<br/> Lafrance, Amélie<br/> Piraino, Patrizio
    Abstract: Discussions of pension adequacy for elderly Canadians have used the rate at which income falls with age; the income replacement rate or the ratio of post-retirement income to pre-retirement income. Use of income streams to assess post-retirement welfare requires a standard against which adequacy of the replacement rates can be judged. Because some expenditures (for example, work-related expenses) can be expected to fall after retirement, a declining income stream does not necessarily signal financial problems for seniors. More importantly, income as normally measured captures only part of what is available to seniors if households possess assets, which in retirement are not being used to generate measured income. This paper uses a different metric, referred to as "potential" income. Potential income is the sum of realized income and the income that could be realized from owned assets such as mutual funds and housing. Households prepare for retirement by saving and borrowing and investing the proceeds. The assets accumulated over a lifetime may or may not be drawn down in later years. If they are not, income streams underestimate the "potential" income available to support retirement. This paper takes this potential into account when comparing the pre- and post-retirement financial status of Canadian households.
    Keywords: Families, households and housing, Income, pensions, spending and wealth, Seniors, Household assets, debts and wealth, Income, pensions and wealth
    Date: 2011–11–21
  13. By: Edwin M. Truman (Peterson Institute for International Economics)
    Abstract: At the recent Cannes G-20 summit, the international monetary system (IMS) reform agenda, along with a number of other important issues, was hijacked by the European crisis. Nevertheless, the G-20 countries and various international institutions conducted an intensive process of review and discussion of the IMS via conferences, working groups, and reports. A year ago French President Sarkozy and other French government officials set the agenda for IMS reform to include five elements: surveillance of the global economy and financial system, the international lender-of-last-resort mechanisms (global financial safety nets), the management of global capital flows, reserve assets and reserve currencies, and IMS governance. Little progress was made on most of these topics. On surveillance there was only one surprise in the form of commitments by a few countries to allow their automatic stabilizers to operate in the current slowdown; on the lender-of-last-resort issues, there will only be marginal steps forward; and on the management of capital flows, the progress that has been achieved over the past several years has been loosely codified, which is a substantive achievement. Overall, the G-20 summit at Cannes resulted in some useful mutual education but not much in terms of concrete accomplishments.
    Date: 2011–11
  14. By: Meilin Yan (School of Business and Economics, Loughborough University, UK); Maximilian J. B. Hall (School of Business and Economics, Loughborough University, UK); Paul Turner (School of Business and Economics, Loughborough University, UK)
    Abstract: This paper provides a long-term cost-benefit analysis for the United Kingdom of the Basel III capital and liquidity requirements proposed by the Basel Committee on Banking Supervision (BCBS, 2010a). We provide evidence that the Basel III reforms will have a significant net positive long-term effect on the United Kingdom economy. The estimated optimal tangible common equity capital ratio is 10% of risk-weighted assets, which is larger than the Basel III target of 7%. We also estimate the maximum net benefit when banks meet the Basel III longterm liquidity requirements. Our estimated permanent net benefit is larger than the average estimates of the BCBS. This significant marginal benenfit suggests that UK banks need to increase their reliance on common equity in their capital base beyond the level required by Basel III as well as boosting customer deposits as a funding source.
    Keywords: Basel III, Cost-Benefit analysis, Tangible Common Equity Capital, Liquidity
    JEL: C32 C53 G21 G28
    Date: 2011–11

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