nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2014‒08‒02
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Economic and financial performance of real estate transactions under accounting rules and specific taxes By Sobolevschi, David Maria Iuli; Robu, Vasile; Petcu, Monica Aureliana; Ciora, Costin
  2. Auditing automated valuation model – case: multivariate regression model for residential property By Donovan, Jamie; Postila, Mikael; Koponen, Seppo; Viitanen, Kauko
  3. Land Taxation: An Idea Whose Time Has Gone By Evans, Alan W.
  4. Accounting information and investment properties: economic and financial stakes for listed groups By Décamps, Aurélien; Ouvrard, Stephane
  5. Property Tax and the Fiscal Independence of local government in Poland By Gluszak, Michal; Marona, Bartlomiej
  6. Accounting Tradition and other drivers of the Fair Value choice: An Opportunistic Management perspective By Marco Fasan; Carlo Marcon
  7. Vertical Mixed Use Communities: A Solution to Urban Sustainability? Review, Audit and Developer Perspectives By Huston, Simon; Mateo-Babiano, Derlie

  1. By: Sobolevschi, David Maria Iuli; Robu, Vasile; Petcu, Monica Aureliana; Ciora, Costin
    Abstract: Characterization of the economic and financial performance of real estate transactions involves the processing of accounting information under the regulations specific tax. In this sense, information with a high degree of concentration is provided by accounting mechanisms using the balance sheet, profit and loss account, statement of equity and explanatory notes. Tha accounting and taxation referential influences the performance of financial accounting statements highlighted. Performance evaluation of real estate transactions is considering complex issues regarding on the one hand economic and financial principles that circumscribe the capital allocation decision based on risk-return specific arbitrage and on the other hand the impact of accounting and tax provisions in the field. The concatenation of these issues is the foundation of reasoning investment, which in real estate, on the globalized markets, incumbent multiplier effects.
    Date: 2014
  2. By: Donovan, Jamie; Postila, Mikael; Koponen, Seppo; Viitanen, Kauko
    Abstract: In this paper, the authors explore the central tenets behind automated valuation models (AVMs) and professional auditing, reconcile them, and aim to provide a solid framework upon which auditors can make their case when auditing AVMs. More specifically, we present a mass valuation model for the Finnish residential property market used by Orava Residential REIT and its annual auditing process conducted by Realia Management Oy. Emphasis is given to the auditing process.Despite their long methodological history (Hotelling 1931, Rosen 1974), automated valuation models have been used by Real Estate professionals for a relatively short while, only gaining traction with the advent of digitisation. Currently, these methods are primarily used for taxation and mortgage evaluation purposes and their use in defining fair value is less common. According to the international accounting standard IFRS 13, a company must value investment properties to IFRS fair value. The company management is ultimately responsible for defining fair values.The use of AVMs in fair value definition requires external opinion of values and inspection of in-house modelling due to investor demand and local legislation. The combination of increasingly advanced valuation tools and growing popularity of new real estate investments ownership structures that allows for easy investment by real estate non-professionals creates additional transparency needs. These needs are fulfilled by external auditing which tests the validity of the assumptions, the data and the models and processes that were employed in the use of the valuation tools. Auditing quality is maintained by organisations such as the Auditing Standards Board and the International Organisation of Standards. However, outside accounting and certification audits, a relative freedom exists. In auditing AVMs, task-specific tools, such as guidance notes are either missing or are still under development (RICS, IVS).Orava Residential REIT solely uses its in-house, multivariate regression model for determining fair values in quarterly and annual financial reporting. This model is presented in the first section of the paper. In the second section the annual auditing process of Orava AVM is explained in detail. In the third and last part, the authors discuss the best practices of auditing while exploring and taking into account nuances that relate specifically to real estate valuation and automated value estimation models.
    Date: 2014
  3. By: Evans, Alan W.
    Abstract: The idea of tax on the value of land was put forward by Henry George in his book Progress and Poverty. Its influence was great. Political parties were formed on the basis of the ideas it put forward and pressure groups still exist to promote those ideas. But despite this quasi-religious belief in the efficacy of land value taxation it has never been widely adopted. Only two countries in western Europe have any kind of land tax, most have some form of tax on the value of the whole property. The reasons for this would seem to lie in problems of practicality and politics.As regards practicality one country which does whole heartedly apply land taxation is Taiwan. The problem there is that in Taipeh at least very little undeveloped land comes onto the market. Therefore in order to value the land on which a building sits, two valuations have to be carried out. First the value of the entire property has to be estimated. Second, the cost of construction of the building has to be estimated. Deducting one estimate from the other the valuer arrives at an estimate of the value of the underlying land. It is evident that the cost of the valuation is twice as great as if a tax were being levied on the value of the property and the result is less certain.In New Zealand municipalities can choose which form of land or property taxation to use to raise money. This problem of practicality is, one would expect, the main reason why none of the major cities use land taxation. Land taxes are used only in the rural areas, where, it is evident, there is land being sold on the market so that valuations can be made both easily and reliably.The political problem is that levying a tax on land might have been politically popular in the nineteenth century when most of the population rented their homes. A land tax would then have been a form of wealth tax - a tax borne by the rich. But in countries where most of the population now own their own homes a land tax is not going to be popular if it is levied at anything other than a low rate. But if it is levied at a low rate then it will not achieve the economic effects that its supporters believe that it could. Its time has passed.
    Date: 2013
  4. By: Décamps, Aurélien; Ouvrard, Stephane
    Abstract: This paper aims to study the impact of IFRS on the measurement of investment properties. Since January 1st 2005, consolidated financial statements of European listed companies have to be published under IFRS standards (European Regulation CE 1606.02 of July 19th 2002). In this new accounting framework based on the American accounting system ,fair value is seen as a key concept. Until recently (January 1st 2013), the fair value concept was disseminated in several IFRS standards including IAS 40 related to investment properties . This latter standard offers to the preparer of accounts a choice of different measurement methods: using either historical cost or fair value model. This accounting choice is not without any consequence on the reading and the interpretation of listed companies' consolidated financial statements.In this article, we propose to depict the link between this accounting choice and the business model of European companies quoted on SBF 120 index which have investment properties on the assets side of their balance sheet. A qualitative analysis of the content of each company's annual report is combined with a set of quantitative variables describing their intrinsic characteristics and performance coming from financial and economic databases. This analysis enables us to estimate the role and impact of their measurement choice related to investment properties on their business model and their economic and financial disclosures.
    Date: 2014
  5. By: Gluszak, Michal; Marona, Bartlomiej
    Abstract: In order to provide a sufficient level of public services, a municipality - as a basic unit of local government in Poland - must be supplied with an adequate level of regular revenues. In a long run the level should rise proportionally to the development of the region. The main purpose of this article is to describe a role of recurrent taxes on immovable property in local government revenues in Poland. In the first part of the paper, we address the problem from international perspective, and examine revenues from recurrent taxes on immovable property in OECD countries. In the second part of the paper, we:(i) explore differences in property tax policy at local level, (ii) analyze similarities between local municipality in Poland with the use of cluster analysis,(iii) analyze relations between tax policy and tax revenues.
    Date: 2014
  6. By: Marco Fasan; Carlo Marcon
    Abstract: The present study tests the impact of accounting tradition, financial leverage and book to market ratio on the fair value choice for a sample of 427 Anglo-Saxon and Continental European companies. We show that, in terms of accounting choices, differences between Anglo-Saxon and Continental European firms still exist, with the former being more likely to choose fair value, consistently with their accounting tradition. By relying on the opportunistic management and accounting choice literature, we test the impact of other two drivers of the fair value choice (financial leverage and price to book ratio) in the two different contexts (Anglo-Saxon and Continental European) and we find that these two drivers have different implications conditional on the context. This implies that empirical evidence gathered in the Anglo-Saxon context cannot be generalized sic et simpliciter to the Continental European context.
    Keywords: accounting choice, fair value, accounting
    JEL: M41
    Date: 2014–07
  7. By: Huston, Simon; Mateo-Babiano, Derlie
    Abstract: Purpose - We explore the growth patterns and development trends of vertical mixed use (VMU) developments in a variety of cities. VMUs are defined as structures with two or more revenue producing uses or land use activities on a single site. One view is that sustainable city development requires densification via VMU construction on brown field sites (within the existing inner city footprint). Design/methodology/approach - After a systematic review of the notion of VMU buildings, we conduct a macro- analytical review of across an, albeit limited, selection of European and Asian cities (Helsinki and Manila). In the micro-urban phase, we investigate VMUs within the main study location (Brisbane CBD). Specifically, we audit VMUs number, location and relative financial and non-financial performance. To evaluate VMU planning merits in the light of local codes and regulations, we adapt and apply Hoppenbrouwer and Louw's model.Findings - We found urban sustainability a complex notion without simplistic solutions. Certainly, VMU is not a 'silver bullet'. The mixed-use notion though has gained ground in some urban regeneration circles. Developers concurred that VMU communities now appeal to an emerging demographic who values accessibility and entertainment. However, developers articulated some concerns about escalating VMU construction cost caused by - Design, staging and funding complexity, and;- Unfavourable regulatory and development controls Research limitations/implications - Further operation research needed on VMU buildings in range of cities.Practical implications - Need for collaboration between developers and planners to facilitate elegant and inexpensive VMU design for streamlined planning.Social implications - If poorly conceptualised and regulated, VMU rollout will detract from not enhance sustainability and reduce not increase housing affordability.Originality/value - The project is the first systematic study of VMU in a growing Sunbelt metropolis.
    Date: 2013

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