nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2015‒01‒26
eight papers chosen by
Alexander Harin
Modern University for the Humanities

  1. A wind of change? Reforms of Tax Systems since the launch of Europe 2020 By Gaëlle Garnier; Endre György; Kees Heineken; Milena Mathé; Laura Puglisi; Savino Rua; Agnieszka Skonieczna; Astrid Van Mierlo
  2. Do Earnings Reported under IFRS Improve the Prediction of Future Cash Flows? Evidence From European Banks. By Palea, Vera; Scagnelli, Simone Domenico
  3. Accounting Integration issues of EU Member States By Aldona Kamela-Sowiñska
  4. Measuring Tax Complexity By David Ulph
  5. Pode um investidor medianamente diligente detectar a manipulação dos resultados das empresas? Estudo do caso Worldcom By José António Moreira
  6. Enhancement and Expansion of Japan's Flow of Funds Accounts in Response to International Recommendations after the Financial Crisis By Sayako Konno
  7. Cyclically Adjusted Current Account Balances By Haltmaier, Jane
  8. Reconstructing China's Supply-Use and Input-Output Tables in Time Series By Harry WU; ITO Keiko

  1. By: Gaëlle Garnier (European Commission); Endre György (European Commission); Kees Heineken (European Commission); Milena Mathé (European Commission); Laura Puglisi; Savino Rua (European Commission); Agnieszka Skonieczna (European Commission); Astrid Van Mierlo (European Commission)
    Abstract: This paper reviews the tax reforms implemented by EU Member States since the adoption of the first country-specific recommendations in the framework of the Europe 2020 strategy. Even though there is a need for more action, as evidenced by the number of tax recommendations, overall many Member States have put in place reforms that follow the logic of the EU policy recommendations in most priority areas. A large number of Member States have recently introduced targeted reductions in the tax burden on labour and have shifted the tax burden towards less detrimental tax bases, although these changes have been of a limited magnitude. Tax incentives to support research and development have grown in importance, and have contributed to sustaining R&D investment during the crisis. Regarding private debt, which was one of the roots of the crisis, several Member States have taken measures to reduce the debt bias in their tax system. Almost half of the Member States have shifted some of the tax burden to recurrent immovable property taxes, even if significant increases were only observed in a few countries. Finally, many Member States have worked on strengthening tax compliance with some of them reporting tangible financial results. However, progress has been more limited in relation to environmental tax reforms and VAT.
    Keywords: European Union; European Semester; taxation, tax policy; VAT; fraud; corporate taxation; personal income taxation; environment; research and development; compliance
    JEL: H11 H20 H24 H25 H26 H27 H87
    Date: 2014–11
  2. By: Palea, Vera; Scagnelli, Simone Domenico (University of Turin)
    Abstract: This paper examines the relative costs and benefits of International Financial Reporting Standards (IFRS) adoption in the European Union by testing the ability of earnings computed under IFRS to predict future cash flows. The study considers the contribution of net income, comprehensive income and other comprehensive income to the usefulness of earnings to predict cash flows, and it compares IFRS with domestic Generally Accepted Accounting Principles (GAAP). Evidence from a sample of Continental - European banks shows that IFRS improve the ability of net income to predict future cash flows. Comprehensive income, too, provides relevant information to predict future cash flows, al though with a measurement error, which is higher than that in net income for greater lags of time. In our interpretation, these findings are consistent with unrealized gains and losses recognized in other comprehensive income being more transitory and volatile in nature. Overall, our results are relevant to academics and standard- setters debating the merits of IFRS adoption and to those who use financial statements and adopt reported earnings to form expectations about future cash flows.
    Date: 2014–12
  3. By: Aldona Kamela-Sowiñska (Poznan University of Economics)
    Abstract: The aim of this article is to discuss the dilemmas over the integration of accounting in EU member states. The dilemma could be divided into the following main groups. Dilemma of the user of financial statements. This dilemma consists in determining for whom the integration of accounting in EU is crucial, and who is the intended beneficiary of integration. Dilemma arising from the lack of theoretical framework for drafting directives and standards: the accounting paradigm assuming that accounting is strictly quantitative. Accounting is a social science, whereas the accounting practice has greater influence on social, rather than purely economic, reality. Dilemma over legal regulations and the legitimization of standard setters could be attributed to accounting regulations as legal norms. A classic example of this might be the transition from rule-based to principle-based IFRSs. The dilemma over the legitimization of standard setters has its roots in the legal aspect of accountancy. In order to solve it, it is necessary to answer the question: ‘who controls the processes of accounting integration?’ since the participants of this process often present divergent viewpoints, and sometimes even opposite priorities. Dilemma over the politicization of accountancy. The more globalized and complex the economic environment is, the more of political intervention there is expected to be in the standard setting process, affected by global geopolitical trends.
    Keywords: Legal norm, Accounting, Integration, European Union
    JEL: M4 K2
    Date: 2014–12
  4. By: David Ulph (University of St Andrews)
    Abstract: This paper critically examines a number of issues relating to the measurement of tax complexity. It starts with an analysis of the concept of tax complexity, distinguishing tax design complexity and operational complexity. It considers the consequences/costs of complexity, and then examines the rationale for measuring complexity. Finally it applies the analysis to an examination of an index of complexity developed by the UK Office of Tax Simplification (OTS).
    Keywords: Complexity; Design Complexity; Tax Equivalence; Distortions; Legal Uncertainty, Compliance Costs; Avoidance
    JEL: H11 H2 H8
    Date: 2014–10–01
  5. By: José António Moreira (Faculdade de Economia da U. Porto; CEF.UP; OBEGEF)
    Abstract: Adopting the financial scandals in the United States as the background context, the current study discusses whether it would have been possible an investor medianly diligent to detect signs of the earnings manipulation underlying such scandals. It proposes an easy methodology, based on a limited set of indicators and ratios, and applies it to the accounting information of WorldCom, infamous for being one of such scandals. The empirical evidence suggests that a year in advance that investor could have detected signs of accounting manipulation. The study makes two main contributions. It highlights the importance and power of such type of methodology; although implicitly, it shows that the main constraint the investor faces in detecting the scandals is mental and driven by the euphoric behaviour of the market at a given moment, eroding any criticism towards the company.
    Date: 2013–06
  6. By: Sayako Konno (Bank of Japan)
    Abstract: In response to the financial crisis in 2008, there are growing moves around the world to enhance statistics in order to identify the buildup of risks and financial and economic vulnerabilities that would not be captured through existing data. Accordingly, the Bank of Japan (BOJ) worked to enhance and expand Japan's Flow of Funds Accounts (J-FFA) and started to release three new data series (1."from-whom-to-whom" data of debt securities and loans, 2."Loans, Debt Securities, and Deposits by Maturity," and 3."Amounts Outstanding of Securitized Products") between 2011 and 2013. These data sets revealed recent notable trends such as: (1) an increase in cross-border transactions; (2) a shift of creditor from the public sector to the private sector; (3) differences in the maturity composition of fund investment and fund raising among economic entities; and (4) a downtrend in the amounts outstanding of securitized products.
    Date: 2015–01–09
  7. By: Haltmaier, Jane (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: The Great Financial Crisis coincided with a sizable reduction in global external imbalances, defined as the absolute value of the sum of individual country current account surpluses and deficits relative to global GDP. Although current account balances should not respond to a downturn that is uniform across countries, one that hits countries with current account deficits harder than those with surpluses might result in a decline in the global balance. This paper quantifies the cyclical portion of the current account balance for 35 countries using estimates of the severity of the cycle in each country relative to that of its trading partners in conjunction with three estimates of the sensitivity of the current account balance to changes in the output gap. Two of the estimates are derived from equations linking trade to income and the third is derived from the relationship between changes in current account balances and changes in output gap differentials. The main result is that the bulk of the reduction in the global current account imbalance since 2006 appears to have been structural. Cyclical forces are estimated to account for between 10 and 30 percent of the decline. In the aggregate, the cyclical effect is estimated to be currently holding down the global current account balance by about 1/2 percentage point. However, the size of the cyclical effect is more substantial for some countries. Both surplus and deficit countries have contributed to the decline in the absolute value of the global current account imbalance, but the contribution of the deficit countries is about twice as large as that of the surplus countries. Changes in oil prices have had largely offsetting effects on the global current account balance, but changes in real exchange rates in recent years have contributed to the reduction.
    Keywords: current account; cycles
    JEL: E32 F17
    Date: 2014–11–27
  8. By: Harry WU; ITO Keiko
    Abstract: This paper documents the procedures of constructing China's input-output tables (IOTs) and supply-use tables (SUTs) in time series for the period 1981-2010 under the East Asian Industrial Productivity/China KLEMS Project. We begin with basic data problems in terms of inconsistencies in concept, coverage, and classification of Chinese national accounts (NAs) and biases of using the NA implicit gross domestic product (GDP) deflators. We then introduce the key procedures in: 1) reconstructing national production accounts as national and industry-level "control totals", 2) constructing industry-level producer price indices, 3) converting 1981 material product system (MPS)-type IOT to the system of national accounts (SNA) standard to match China's five full-scale IOTs (1987, 1992, 1997, 2002 and 2007), 4) constructing industry-level export and import accounts to match each benchmark IOT, and 5) estimating supply-use tables in time series using the SUT-RAS approach from the World Input-Output Database (WIOD), and based on the estimated SUTs, we finally derive China's input-output accounts in time series. Furthermore, we adopt the chained-Laspeyres deflation approach to estimating SUTs in constant prices. With these procedures, we have arrived at an annual GDP growth rate of 9.4% instead of the official estimate of 10.2% for the full period. However, at the broad-sector level, we show a much faster industrial GDP growth at 15.6% per annum instead of the official estimate of 11.9% per annum. As for non-industrial GDP growth, our estimate is 5.2% per annum rather than the official estimate of 8.9% per annum.
    Date: 2015–01

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