nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2014‒12‒13
six papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Methodological thoughts on expected loss estimates for IFRS 9 Impairment: hidden reserves, cyclical loss predictions and LGD backtesting By Wolfgang Reitgruber
  2. Do Tax Credits Affect R&D Expenditures by Small Firms? Evidence from Canada By Ajay Agrawal; Carlos Rosell; Timothy S. Simcoe
  3. How has FDI influenced Current Account Balance In India? Time Series Results in presence of Endogenous Structural Breaks By Jaydeep Mukherjee; Debashis Chakraborty; Tanaya Sinha
  4. Interjurisdictional Competition and Location Decisions of Firms By Hernandez-Murillo, Ruben
  5. Collateral imbalances in intra-european trade? Accounting for the difference between gross and value added trade balances By Nagengast, Arne J.; Stehrer, Robert
  6. Can tax policy co-cause the crisis? By Szarowska, Irena

  1. By: Wolfgang Reitgruber
    Abstract: After the release of the final accounting standards for impairment in July 2014 by the IASB, banks will face another significant methodological challenge after Basel 2. The presented work shares some first methodological thoughts and proposes ways how to approach underlying questions. It starts with a detailed discussion of the structural conservatism in the final standard. The exposure value outlined in the first exposure draft 2009 will be interpreted as a fair under amortized cost accounting and consequently provides a valid benchmark. Therefore the ED 2009 is used to quantify conservatism or hidden reserves in the actual implementation of the final standard and to separate operational side-effects from real risk impacts. The second part continues with a quantification of expected credit losses based on Impact of Risk instead of traditional cost of risk. An objective framework is suggested which allows for improved testing of forward looking credit risk estimates during credit cycles. This framework will prove useful to mitigate overly pro-cyclical provisioning and earnings volatility. Finally, an LGD monitoring and backtesting approach applicable for regulatory requirements and accounting standards is proposed. On basis of the NPL Backtest, which is part of the Impact of Risk concept, specific key risk indicators are introduced that allow for a detailed assessment of collections performance versus LGD in bucket 3.
    Date: 2014–11
  2. By: Ajay Agrawal; Carlos Rosell; Timothy S. Simcoe
    Abstract: We exploit a change in eligibility rules for the Canadian Scientific Research and Experimental Development (SRED) tax credit to gain insight on how tax credits impact small-firm R&D expenditures. After a 2004 program change, privately owned firms that became eligible for a 35 percent tax credit (up from a 20 percent rate) on a greater amount of qualifying R&D expenditures increased their R&D spending by an average of 15 percent. Using policy-induced variation in tax rates and R&D tax credits, we estimate the after-tax cost elasticity of R&D to be roughly -1.5. We also show that the response to changes in the after-tax cost of R&D is larger for contract R&D expenditures than for the R&D wage bill and is larger for firms that (a) perform contract R&D services or (b) recently made R&D-related capital investments. We interpret this heterogeneity as evidence that small firms face fixed adjustment costs that lower their responsiveness to a change in the after-tax cost of R&D.
    JEL: H2 H71 O25 O31 O38
    Date: 2014–10
  3. By: Jaydeep Mukherjee (Indian Institute of Foreign Trade, New Delhi, India); Debashis Chakraborty (Indian Institute of Foreign Trade, New Delhi, India); Tanaya Sinha (Lecturer, Amity University)
    Abstract: In 1991 as par the recommendations of the IMF, India followed a structural adjustment programme. The new economic philosophy shifted towards export-oriented growth model, where augmenting competition in the domestic market through reforms in licensing provisions and adoption of better technological capabilities through FDI collaborations have played an extremely important role. Over the last decade, the high economic growth in India resulting from the reforms has motivated massive FDI inflow in the country. The continuous inflow has caused India’s share in global FDI inward stock to increase from 0.08 percent in 1990 to 0.22 percent and 1.03 percent in 2000 and 2010 respectively. However, the improved FDI scenario in India has simultaneously witnessed a decline in the current account balance (CAB) of the country. In this background, the current paper attempts to explore the underlying long term co-integrated relationship between FDI inflow in India and CAB by analyzing quarterly data over 1990-91:Q1 to 2010-11:Q4. Our result indicates that there exists a unique long-run relationship among FDI and CAB with two endogenous structural breaks. The analysis also reveals a unidirectional causality from India’s FDI to CAB at 5 percent level. The findings imply that although FDI may seem beneficial as a source of financing for the current account deficit, it may eventually lead to balance of payments problems due to adverse effects on current account. In this respect, even the role of FDI on economic growth can be questioned. Secondly, the huge outflow of foreign exchange from the country in recent years in the form of profit remittances raises the concerns over the optimality of allowing hundred percent profit repatriation.
    Keywords: International Capital Movements, Foreign Exchange, Current Account Adjustment
    JEL: F21 F31 F32
    Date: 2013–01
  4. By: Hernandez-Murillo, Ruben (Federal Reserve Bank of St. Louis)
    Abstract: We examine the welfare properties of alternative regimes of interjurisdictional competition for heterogenous mobile firms. Firms differ not only in terms of the degree of mobility across jurisdictions but also in terms of productivity. Alternative taxation regimes represent restraints on the discretionary powers of taxation of local governments. We find that average welfare is higher under discretionary and more efficient taxation regimes (in the sense of minimizing deadweight losses from distortionary taxation) when firms are highly mobile. In this situation, further limiting competition by imposing a system of non-discretionary instruments can reduce average welfare by reducing the efficiency of the local governments at raising and allocating public funds. When firms face high moving costs, on the other hand, switching to a non-discretionary and less efficient taxation regime may increase welfare by preventing local governments from engaging in excessive redistribution of resources.
    Keywords: Firms location decisions; jurisdictions; tax competition.
    JEL: C72 H21 H32 H73
    Date: 2014–10–01
  5. By: Nagengast, Arne J.; Stehrer, Robert
    Abstract: One of the main stylised facts that has emerged from the recent literature on global value chains is that bilateral trade imbalances in gross terms can differ substantially from those measured in value added terms. However, the factors underlying the extent and sign of the differences between the two measures have so far not been investigated. Here, we propose a novel decomposition of bilateral gross trade balances that accounts for the differences between gross and value added concepts. The bilateral analysis contributes conceptually to the literature on double counting in trade by identifying the trade flow in which value added is actually recorded for the first time in international trade statistics. We apply our decomposition framework to the development of intra-EU27 trade balances from 1995-2011 and show that a growing share of intra-EU bilateral trade balances is due to demand in countries other than the two direct trading partners. JEL Classification: F1, F2, C67, R15
    Keywords: global value chains, input-output tables, trade balances, value added, vertical specialisation
    Date: 2014–07
  6. By: Szarowska, Irena
    Abstract: Although taxes have not generated the crisis, some aspects of tax policy may have led to increased risk-taking and indebtedness of banks, households and companies. Tax incentives may indeed the behavior of economic agents, leading them to wrong economic decisions. The aim of the paper is to review main channels through which the tax policy can affect financial markets and financial stability. Attention is focused on last and current development of tax reliefs for housing and capital gains, tax benefits for corporate debt financing and taxation of financial institutions Conventional scientific methods such as analysis, induction, comparison and synthesis are used in the paper.
    Keywords: crisis; corporate debt financing; housing; taxation of financial institutions
    JEL: G1 G10 G20 G3 H2
    Date: 2013

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