nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒01‒18
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Fair value vs conservatism? Aspects of the history of accounting, auditing, business and finance from ancient Mesopotamia to modern China By Richard Macve
  2. Value-Addes Tax and Shadow Economy : the Role of Input-Output Linkages (revision of CentER Discussion Paper 2013-036) By Hoseini, Mohammad
  3. ìColonial Virginiaís Paper Money Regime, 1755-1774: A Forensic Accounting Reconstruction of the Dataî By Farley Grubb
  4. Credit Default Swaps as Indicators of Bank Financial Distress By Davide Avino; Thomas Conlon; John Cotter
  6. Premium Municipal Bonds and Issuer Fiscal Distress By Whitaker, Stephan; Ergungor, O. Emre
  7. Financial Effects of Fiscal Transparency: A Critique By Anton Gerunov
  8. Macroeconomic factors in corporate and household saving. Evidence from Central and Eastern Europe By Merike Kukk; Karsten Staehr
  9. Prudential filters, portfolio composition and capital ratios in european banks By Isabel Argimón; Ángel Estrada; Michel Dietsch
  10. Hedonic Regression Models for Tokyo Condominium Sales By Diewert, W. Erwin; Shimizu, Chihiro

  1. By: Richard Macve
    Abstract: To help understand modern financial accounting theory (FAT) and its role in the development of finance and business, I consider two current mainstream histories of its development and offer a third alternative. The standard setters' version is that increasingly FAT is rationally derived from a basically coherent conceptual framework, currently focussed on ‘comprehensive income’ as measured by ‘changes in assets and liabilities’, in turn preferably measured at fair values. However, examination here of several recent FASB/IASB standards and exposure drafts shows that instead they unavoidably bear the marks of the history of a variety of now embedded practices that have shaped thinking about, and vested interests in, what is ‘good accounting’. By contrast, some recent academic versions of history focus on how ‘conservative’, historical-cost based accounting principles have rationally evolved to provide an anchor on which to base appraisal of firms' and managers' performance, prospects and risks, and supply the kind of information that investors and other parties in the capital markets need to help overcome the information asymmetry between them and corporate managers. After analysing the limitations of this second type of history, I argue that even a brief genealogical examination of the conditions of possibility that have led to the growth and changes in accounting and auditing practices and discourses, and in the power-knowledge relations that they have engendered at different stages over the millennia of recorded history, suggests that their power has always been more that of ‘institutional rationalised myth’. The twin rational myths of the objectivity of accounting and of auditing together provide the structure that offers the comfort necessary to enable the various agents in the modern, increasingly global, economy to undertake and finance the risks of acting ‘at a distance’ and across time. This modern, grammatocentric accountability increasingly extends throughout the institutions that coordinate modern societies, in the rising East as well as in the established West. Exploring how much of FAT is rational and reflects some objective ‘economic reality’ and how much is myth and is subjectively, socially constructed; and, again, how much might be improved and how much is intractable, are the major questions now for accounting, auditing and finance policy-making and research. This requires further detailed comparative international historical understanding of how accounting and auditing have variously operated, within businesses and other organisations and in shaping markets, across different countries and cultures.
    Keywords: Business history; China; comparative international accounting history; conceptual framework; conservatism; fair value; Institutional rationalised myth
    JEL: M40
    Date: 2015
  2. By: Hoseini, Mohammad (Tilburg University, Center For Economic Research)
    Abstract: Under the VAT, formal traders report their purchases to the administration for a<br/>deduction in their VAT bill. This paper models this third-party reporting feature of the VAT in an input-output economy and quantifies it among different activities using a forward linkages index. The administration can reduce the size of shadow economy by reallocating visiting audits to backwardly linked activities and cross-checking VAT payments with input credit claims in forwardly linked activities. Empirical evidence from Indian service sector justifies the assumptions and suggests a significant increase in the tax compliance of forwardly linked activities following VAT adoption in 2003.
    Keywords: Value-added tax; Informality; Tax enforcement; Linkage analysis
    JEL: H26
    Date: 2015
  3. By: Farley Grubb (Department of Economics, University of Delaware)
    Abstract: I reconstruct the data on Virginiaís paper money regime using forensic accounting techniques. I correct the existing data on the amounts authorized and outstanding. In addition, I reconstruct yearly data on previously unknown aspects of Virginiaís paper money regime, including printings, net new emissions, redemptions and removals, denominational structures, expected tax revenues, and specie accumulating in the treasury for paper money redemption. These new data form the foundation for narratives written on the social, economic, and political history of Virginia, as well as for testing models of colonial paper money performance.
    Keywords: bills of credit, data cloning, specie monies, tax revenues, treasury notes
    JEL: C82 E51 N11
    Date: 2015
  4. By: Davide Avino (School of Management, Swansea University); Thomas Conlon (Smurfit Graduate Business School, University College Dublin); John Cotter (Smurfit Graduate Business School and Geary Institute for Public Policy, University College Dublin)
    Abstract: We examine the ability of CDS contracts written on individual banks to provide market discipline. Changes in CDS spreads are found to represent a robust signal of bank failure, thus providing indirect market discipline. Furthermore, changes in CDS spreads provide information about the condition of banks which supplements that available from equity markets and contained in accounting metrics. Consistent results are detailed for both senior and subordinated CDS spreads. Our results hold for various cohorts, for excess and idiosyncratic changes in CDS and are robust to the use of alternative measures of bank distress, including rating downgrades and accounting risk.
    Keywords: height, Bank Failure, Market Discipline, Credit Default Swap, CDS
    Date: 2016–01–07
  5. By: Sneha Master
    Abstract: Green Accounting is basically adoption of valuation of natural capital integration in planning for development. Incorporating green accounting into national economic accounts could provide a measure of sustainability; however, considerable advanced methods of measurement and valuation are needed. There are, of course, no substitutes for the life-sustaining services of nature and the question of when and how to account for this fact is the source of many ongoing debates in green accounting. Key words: Green accounting, accounting, legal, Critical
    Date: 2015–09
  6. By: Whitaker, Stephan (Federal Reserve Bank of Cleveland); Ergungor, O. Emre (Federal Reserve Bank of Cleveland)
    Abstract: Economic theory suggests that bond issuers of lower credit quality or higher opacity should be more likely to issue bonds with premium coupons (higher coupon rates relative to yields at issuance). Using a comprehensive data set of municipal bonds issued between 1992 and 2012 by more than 21,000 issuers, we show that this has not been the case until the early 2000s. We examine what changed in this market to bring it into greater alignment with economic principles. We argue that the Government Accounting Standards Board’s Statement 34 that required the use of accrual accounting rules in government financial reports deserves the credit.
    Keywords: Premium Bonds; Public Financial Management; Municipal Bonds; Fiscal Stress; GASB Statement 34
    JEL: H74
    Date: 2016–01–04
  7. By: Anton Gerunov (Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski)
    Abstract: This paper investigates the effects of budget transparency on fiscal performance. It fits a panel regression model on data from the Open Budget Index through its five rounds (OBI 2006-OBI 2015) and investigates the effect of openness on budget balance, primary balance and government debt across a sample of 57 countries. We seek to validate the proposed positive effect of fiscal transparency on objective performance indicators. Main results show that the link between openness and budget balance is relatively weak, while the effect of OBI on debt is more robust. This effect is also differentiated, with the lowest and highest-income countries benefitting most from openness.
    Keywords: budget, transparency, fiscal openness, deficit, debt
    JEL: H61 H62
    Date: 2016–01
  8. By: Merike Kukk; Karsten Staehr
    Abstract: This paper uses panel data estimations on annual data from 10 Central and Eastern European countries to assess the effect of different macroeconomic variables on the dynamics of corporate and household saving. The analyses reveal that changes in the macroeconomic environment are important for the saving rates in both sectors, but with marked differences across the sectors. The differences are most pronounced for the output gap, the real interest rate, the inflation rate and the current account balance. Some variables such as the unemployment rate and changes in the real exchange rate are unimportant in both sectors. The differences across the sectors underscore the importance of analysing corporate and household saving separately
    Keywords: sectoral saving rates, Central and Eastern Europe, macroeconomic variables
    JEL: E21 E32 E44
    Date: 2015–12–30
  9. By: Isabel Argimón (Banco de España); Ángel Estrada (Banco de España); Michel Dietsch (ACPR-Banque de France)
    Abstract: European banks hold 10% of their total assets in portfolios that give rise to unrealised gains and losses which under Basel III will no longer be allowed to be removed from banks’ regulatory capital. Using a sample of European banks, and taking advantage of the different treatment afforded, under Basel II, to such gains and losses among jurisdictions and instruments and over time, we find evidence that: a) the inclusion of unrealised gains and losses in capital ratios increases their volatility; b) the partial inclusion of unrealised gains and total inclusion of losses on fixed-income securities in regulatory capital, compared with the complete exclusion of both (neutralisation), reduces the volume of securities categorised as Available For Sale (AFS), thus potentially affecting liquidity management and demand for bonds (most of which are currently government bonds); and c) the higher the partial inclusion of gains from debt instruments, the lower the holdings of such instruments in the AFS category and the higher the regulatory Tier 1 capital ratio, thus affecting banks’ capital buffer strategy. We do not find evidence that the removal of neutralisation would impact capital ratios.
    Keywords: prudential regulation, regulatory capital, fair value accounting, prudential filters
    JEL: G21 M41
    Date: 2015–12
  10. By: Diewert, W. Erwin; Shimizu, Chihiro
    Abstract: The paper fits a hedonic regression model to the sales of condominium units in Tokyo over the period 2000-2015. The problem is complicated by the need to decompose the selling price of a unit into a component that can be attributed to the structure area of the unit and another component that can be attributed to the unit’s share of land value. There is very little information on the value of condominium land and so this paper develops a methodology for reducing this knowledge gap. The paper extends the builder’s model which was developed in Eurostat (2013). Characteristics which prove to be important in explaining condominium prices are: the floor space area of the unit, the total land area of the building, the number of units in the building, the total number of stories in the building, the height of the sold unit, the age of the structure and the amount of excess land. The paper also derives an estimate for the annual geometric structure depreciation rate for condominiums in Tokyo.
    Keywords: Condominium property price indexes, System of National Accounts, Balance Sheets, methods of depreciation, land and structure price indexes, hedonic re
    JEL: C2 C23 C43 E31 R21
    Date: 2016–01–05

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