nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2012‒09‒30
five papers chosen by
Alexander Harin
Modern University for the Humanities

  1. La nécessité d'une adoption (et l'adaptation) mondiale des IFRS (des normes internationales d'information financière): conséquences post-Enron et la restauration de la confiance aux marchés financiers à la suite des crises de 2008 financières et boursières By Ojo, Marianne
  2. Mitigating shareholder taxation in small open economies? By Jacob, Martin; Södersten, Jan
  3. Taxes and Investment in Skills By Carolina Torres
  4. Corporate Taxes and Internal Borrowing within Multinational Firms By Peter Egger; Christian Keuschnigg; Valeria Merlo; Georg Wamser
  5. Accounting fraud, business failure and creative auditing: A micro-analysis of the strange case of Sunbeam Corp. By Marisa Agostini; Giovanni Favero

  1. By: Ojo, Marianne
    Abstract: Many questions have been raised as to whether financial accounting has become more conservative. The value relevance and qualitative characteristics of accounting information have become topics of particular relevance given the role they have assumed in influencing the value judgment of investors (local or international) in deciding whether or not to invest in a certain market. Given the quality of accounting information – which has resulted in misleading and inaccurate information (amongst many other low quality attributes), it became evident, particularly following Enron's collapse, to adopt improved, enhanced, better quality standards: namely, International Financial Reporting Standards. This paper considers the background culminating in the adoption of IFRS – as well as the need for the adoption of IFRS. It also highlights why the value relevance of accounting information is also of vital significance in certain emerging economies and why the successful implementation of IFRS in these jurisdictions may be crucial in restoring investor confidence – particularly in the aftermath of stock market crashes in these economies.
    Keywords: value relevance; conservatism; capital markets; transparency; disclosure; comparability; consistency; accounting information; IFRS adoption ; mark to market accounting; IAS 32; IAS 39; financial instruments; fair value accounting; off balance sheet instruments
    JEL: K2 C22 M4 G01
    Date: 2012–09–15
  2. By: Jacob, Martin (WHU-Otto Beisheim School of Management); Södersten, Jan (Department of Economics)
    Abstract: This article reconsiders the role of dividend taxation and its effect on the cost of capital of small firms. Using a simple portfolio model for small open economies, we show that a decrease in dividend taxes on large companies unambiguously increases the required rate of return for small companies. A dividend tax cut for both, large and small companies may however lead to the counter-intuitive result of increasing cost of capital for small firms. For different small open economies, we further provide statistics on the correlation between the return of large and small firms that drives the counter-intuitive result. Our results suggest that mitigating payout taxes in small open economies can have ambiguous effects on the cost of capital of small, domestically owned firms. This is particularly relevant when tax reforms are designed to stimulate investments by small firms scarce in internal funds.
    Keywords: Shareholder taxation; corporate-personal tax integration; open economy; investment incentives; small firms
    JEL: H24 H25
    Date: 2012–09–10
  3. By: Carolina Torres
    Abstract: This paper considers the influence of taxes on the financial incentive to invest in human capital and explores the tax treatment of private investment by individuals and employers in post-compulsory education and lifelong learning in 31 OECD countries, India and South Africa. The paper describes targeted personal, corporate and value added tax measures related to education and training and analyses them in terms of their impacts on the incentive to acquire skills and their distributional effects. The desirability of different forms of tax relief for skills formation is examined from the point of view of efficiency, equity and administrative simplicity within the broader context of fiscal policy and the role of government in skills formation beyond compulsory education.
    Keywords: human capital, tax policy, OECD countries, skills formation, tax incentives, education finance
    JEL: H21 H24 H25 I22 J24
    Date: 2012–09–17
  4. By: Peter Egger; Christian Keuschnigg; Valeria Merlo; Georg Wamser
    Abstract: This paper develops a theoretical model of multinational firms with an internal capital market. Main reasons for the emergence of such a market are tax avoidance through debt shifting and the existence of institutional weaknesses and financial frictions across host countries. The model serves to derive hypotheses regarding the role of local versus foreign characteristics such as profit tax rates, lack of institutional quality, financial underdevelopment, and productivity for internal debt at the level of a given foreign affiliate. The paper assesses hypotheses in a panel data-set covering the universe of German multinational firms and their internal borrowing. Numerous novel insights are gained. For instance, the tax-sensitivity found in this paper is many times higher than previous research suggests. This accrues mainly to three things: the consideration of the boundedness of the internal debt ratio as a dependent variable in comparison to its treatment as an unbounded variable in most of the previous work; the coverage of all (small and large) multinationals here rather than a focus on large units in previous work; and the inclusion of endogenous characteristics in other countries multinationals are invested in (due to endogenous weights) while previous work did not consider such effects at all or assumed them to be exogenous. Moreover, local and foreign (at other locations of a given affiliate) market conditions matter more or less symmetrically and in the opposite direction. There is a nonlinear trade-off between institutional quality or financial development on the one hand and higher profit tax rates on the other hand, and the strength of this trade-off depends on the characteristics of one location relative to the other ones a multinational firm has affiliates (or the headquarters) in.
    JEL: F23 G32 H25
    Date: 2012–09
  5. By: Marisa Agostini (Department of Management, Università Ca' Foscari Venezia); Giovanni Favero (Department of Management, Università Ca' Foscari Venezia)
    Abstract: This paper puts under the magnifying glass the path to failure of Sunbeam Corp. and emphasizes the reasons of its singularity and exceptionality. This corporate case emerges as an outlier from the analysis of the US fraud cases mentioned by WebBRD: the consideration of the time between fraud disclosure and the final bankruptcy reveals the presence of an exceptional sampled case. In fact, the maximum value of this temporal variable is estimated equal to 840 days: it is really far from the range estimated by the survival function for the entire sample and it refers to Sunbeam Corp. Different hypotheses are evaluated in the paper, starting from the consideration of Sunbeam's history peculiarities: fraud duration, scapegoating and creative auditing represent the three main points of analysis. Starting from a micro-analysis of this case that the SEC investigated in depth and this work describes in detail, inputs for future research are then provided about more general problems concerning auditing and accounting fraud.
    Keywords: accounting fraud, failure path, creative auditing, historical micro-analysis
    JEL: M41 M42 N80 N82 M48
    Date: 2012–09

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