nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2014‒10‒22
five papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Tax-adjusted Q Model with Intangible Assets: Theory and Evidence from Temporary Investment Tax Incentives By Estelle P. Dauchy; Sophia Chen
  2. The risks associated with cloud computing. By Andries M.; Cassin G.; Bahhaouy A.; Philippe F.; Foratier Y.; Lopez Vernaza A.; Rigodanzo F.
  3. Does Corporate Taxation Deter Multinationals? Evidence from a Historic Event in Ireland By Holger Görg; Eric Strobl
  4. Housing finance in France in 2012. By Point E.; Capitaine G.; Clerc V.; LE Quéau L.
  5. Alternative Approaches to Commercial Property Price Indexes for Tokyo By Diewert, Erwin; Shimizu, Chihiro

  1. By: Estelle P. Dauchy (New Economic School); Sophia Chen (Research Department, International Monetary Fund)
    Abstract: We propose a tax-adjusted q model with physical and intangible assets and estimate the effect of bonus depreciation in the United States in the early 2000s. We find that investment responds moderately to tax incentives; however allowing for heterogeneity reveals that intangible-intensive firms are more responsive than physical-intensive firms and their differences increase with firm size. Accounting for intangible assets increases the estimated total investment response from 3.7 to 14.3 percent among the largest 500 firms. Our results imply that understanding the behavior of large and intangible-intensive firms has important implications for the design and evaluation of investment policy.
    Keywords: investment tax incentives, intangible assets, q model of investment, bonus depreciation
    JEL: H25 G31 E01
    Date: 2014–09
  2. By: Andries M.; Cassin G.; Bahhaouy A.; Philippe F.; Foratier Y.; Lopez Vernaza A.; Rigodanzo F.
    Abstract: Information systems are of strategic importance in both the banking and insurance sectors. The development of cloud computing is a recent advance that has become a subject of attention. Cloud computing is defined as a "method of processing a client's data, which are exploited via the Internet in the form of services provided by a service provider. Cloud computing is a special form of information technology (IT) outsourcing, in which end users are not informed of the location or internal structure of the cloud." This topic is particularly current for a number of regulatory bodies. In France, the Agence Nationale de Sécurité des Systèmes d’Information (ANSSI – French Network and Information Security Agency) is working on regulation via a certification mechanism. In 2012 the Commission Nationale de l’Informatique et des Libertés (CNIL – French Data Protection Authority) issued recommendations for companies considering subscribing to cloud computing services. Abroad, many supervisory authorities have issued statements (the United States of America, Singapore, the Netherlands), or imposed a system of prior authorisation (Spain) for the use of this technology. In this context, the Secrétariat général de l’Autorité de contrôle prudentiel (SGACP – General Secretariat of the Prudential Supervisory Authority) conducted a short survey to engage in a dialogue with companies in the banking and insurance sectors on the scope, use and risks of cloud computing. A total of 14 companies from the insurance sector and 12 from the banking sector responded to a questionnaire at the beginning of this year, providing a representative view on these topics. The first idea that emerged from this dialogue was a need to clarify the concept of cloud computing by offering a multi-criteria definition, inspired by that given by the American National Institute of Standards and Technology (NIST). The SGACP therefore proposes to describe these services as follows: cloud computing consists in using remote servers to store and process data traditionally located on local servers or on the user's terminal; it enables on-demand and self-service network access to virtualised and pooled computing resources typically charged for on a pay-per-use model; three types of services are offered (IaaS – Infrastructure as a Service, PaaS – Platform as a Service, SaaS – Software as a Service), deployed according to four models (internal private cloud, external private cloud or community cloud, public cloud, hybrid cloud). The credit institutions and insurance undertakings (companies) responding to the questionnaire confirmed that cloud computing poses greater risks compared to conventional IT outsourcing. The numerous risks identified include data privacy, unavailability of data and data processing, loss of integrity (especially the risk of non-reversibility or lock-in) and finally the area of evidence and control. They agree on the need for a stronger legal environment, the need for certain technical security measures, the need to audit the service provider, the need for the provider to commit to continuity of service and, finally, the need to obtain a guarantee from the service provider on the reversibility of the service. However, opinions differ on the importance of the economic aspects surrounding cloud computing, with many companies claiming that security considerations should prevail in analysing its value. Moreover, it is noted that an overwhelming majority of companies use cloud computing in management areas considered outside the "core business", even if use in more sensitive areas is also beginning to emerge. It also appears that there are differences in the procedures for the adoption of cloud computing between the insurance and banking sectors. As a result of this initial analysis, which shall be refined as changes in the use and the risks of cloud computing are observed, the Autorité de contrôle prudentiel (ACP – Prudential Supervisory Authority) is encouraging the companies it supervises to take suitable risk management measures in respect of the following aspects: - Legal: by enforcing a mandatory contractual framework for cloud computing services; - Technical: by encrypting data during transport and storage (in the absence of anonymisation); - Supervision of the service provider: by ensuring audit capability and the right for the ACP to conduct audits; - Continuity of the service: by ensuring that the expectations of the client company can be formalised in service contracts; - Reversibility of the service: by defining the conditions of reversibility when subscribing to the service; - Integration and architecture of information systems: by adapting the organisation and governance of information systems to the use of cloud computing. These good practices form part of the broader framework defined for the supervision of outsourced services, including conventional outsourcing. The expectations of the ACP in terms of governance of decisions, risk analysis, contractual elements, monitoring and the internal control of cloud computing services are therefore similar to those currently in force in prudential supervision.
    Keywords: .
    Date: 2013
  3. By: Holger Görg; Eric Strobl
    Abstract: We use a unique exogenous corporate tax policy change in the Republic of Ireland to investigate how corporate taxation affects foreign direct investment at the extensive and intensive margin. To this end we construct exhaustive sectoral and plant level panel data and use difference-in-differences strategies. Our results do not provide strong evidence that the increase in corporate tax rates for exporters did affect the entry or exit of plants from the US or UK in Ireland. Entry rates of German firms seem to be negatively affected, however. At the intensive margin there is evidence that foreign plants in Ireland reduce the size of their operations in response to the tax change
    Keywords: multinational companies, foreign direct investment, corporate tax, Ireland, difference-in-differences
    JEL: F23 H25
    Date: 2014–09
  4. By: Point E.; Capitaine G.; Clerc V.; LE Quéau L.
    Abstract: In a context of declining housing sales and decreasing prices, the annual survey on housing finance carried out by the Autorité de Contrôle prudentiel et de Résolution (ACPR) recorded a 27.6% decrease in loans extended in 2012. Outstanding loans experienced their lowest annual growth since 2001 (+2.4%). The market remains characterised by strong fundamentals, in line with the assessments made by the Joint Forum and the International Monetary Fund, even though some risk indicators stabilised at high levels: - In 2012, the maturity of new loans at origination remained similar to 2011 at 19.8 years. However, the effective maturity, which take early redemptions into account, increased by almost 5 months to 13.3 years; - The proportion of the most indebted borrowers (i.e. with a debt service ratio above 35%) in the production decreased slightly in 2012 and the average debt service ratio was stable at 30.5%, although it remained at its highest level since 2001; - Since 2005, the proportion of fixed-rate loans has increased to reach almost 90%. Uncapped floating-rate loans, which entail the highest risk for borrowers, only accounted for 3% of total loans at the end of 2012. Interest-only loans continued to represent a very scarce proportion of the production (0.44% in 2012); - Almost every home loan is covered by a guarantee that has been issued by a credit institution or an insurance company in most cases; - The average loan-to-value (LTV) ratio at origination, i.e. the amount of the loan for home buying to the property purchase price, decreased by almost 2 points as compared to 2011; nevertheless at 79.9%, it remained higher than its 2008 trough (75.5%). Several other trends deserve attention: - The average loan amount increased faster than real estate prices in 2012, supposedly reflecting the continuing decline of interest rates over the year; - The ratio of non-performing housing loans grew again in 2012, but, at 1.47%, it still remained below the average ratio of non-performing loans; nevertheless, delinquency rates vary significantly from one segment to another, owners-buyers as well as floating-rate loans exhibiting the highest levels; - The average coverage ratio stabilised at 22% of specific allowances for loans to total gross impaired loans, a level still significantly lower than the average coverage ratio for all types of loans (51.5%); - While banks benefit from borrowers frequently taking out insurance against death or work disability, they are still exposed to unemployment risk as only a small fraction of their customers has subscribed a job-loss insurance; - The cost of risk on housing loans, which had continued to decrease in 2011 from its 2009 peak, rose by almost 50% in 2012, from 0.043% to 0.061% of gross outstanding loans, but it still remains at a very low level. In this context, the main market participants generally recorded a low to medium risk level. In 2012, the ACPR performed on-site examinations in French credit institutions. The purpose was to assess banks’ strategies regarding housing finance, their underwriting standards and the quality of risk management. These audits highlighted that, despite noticeable improvements, risks monitoring and internal control still called for a strengthening. A significant downward adjustment cannot be excluded given the strong increase in property prices since 1998. Credit institutions thus must make sure that interest rates on housing loans fully take into account funding costs, operating expenses and expected cost of risk. They must also avoid aggressive pricing strategies so as to ensure healthy conditions of competition. Borrowers’ debt service must stay limited to a reasonable proportion of their disposable income, and credit institutions have to pay attention to the LTV at origination as well as periodically thereafter. Finally, any excessive lengthening of loan maturities should be avoided.
    Keywords: housing loans, loan amount, loan maturity, loan-to-value ratio, debt service ratio, first-time borrowers, owners-buyers, loan transfers, buy-to-let, non-performing loans, coverage ratio, interest rate margin.
    JEL: G21 R21 R31
    Date: 2013
  5. By: Diewert, Erwin; Shimizu, Chihiro
    Abstract: The paper studies the problems associated with the construction of price indexes for commercial properties that could be used in the System of National Accounts. Property price indexes are required for the stocks of commercial properties in the Balance Sheets of the country and related price indexes for the land and structure components of a commercial property are required in the Balance Sheet accounts of the country for the calculation of the Multifactor Productivity of the Commercial Property Industry. The paper uses a variant of the builder’s model that has been used to construct Residential Property Price Indexes. Geometric depreciation rates are estimated for commercial offices in Tokyo using assessment data for REITs. The problems associated with the decomposition of asset value into land and structure components are addressed. The problems associated with depreciating capital expenditures on buildings and with measuring the loss of asset value due to early retirement of the structure are also addressed.
    Keywords: Commercial property price indexes, System of National Accounts, Balance Sheets, methods of depreciation, land and structure price indexes, demolition depreciation
    JEL: C2 C23 C43 D12 E31 R21
    Date: 2014–09

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