nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒02‒23
twelve papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Book-tax conformity and reporting behavior: A quasi-experiment By Evers, Maria Theresia; Meier, Ina; Nicolay, Katharina
  2. A critical analysis of Islamic bond: A case study on Sunway Treasury Sukuk By Uddin, Md Akther; Sultan, Yousuf; Hosen, Mosharrof; Ullah, Nazim
  3. A More Precise Approach to Fiscal Consolidation and Sustainability By Afonso, Sérgio
  4. Pre-trial procedure for settlement of disputes by results of tax inspections and the ways of its improvement By Zhirova, Galina
  5. Financial Stability Paper No 24: The role of external balance sheets in the financial crisis By Al-Saffar, Yaser; Ridinger, Wolfgang; Whitaker, Simon
  6. Double Liability in a Branch Banking System: Historical Evidence from Canada By Grodecka, Anna; Kotidis, Antonis
  7. Fiscal Policy and Financial Distress: A Balance Sheet Perspective By John FitzGerald; Philip Lane
  8. Reforms, Finance, and Current Accounts By Bertola, Giuseppe; Lo Prete, Anna
  9. The Determinants of Economic Fragility: Case of the Fragile Five Countries By Unver, Mustafa; Dogru, Bulent
  10. Real Exchange Rates, Current Accounts and Competitiveness Issues in the Euro Area By Mirdala, Rajmund
  11. IS Imbalances and Current Account Surpluses in Japan: In Memory of Professor Ronald I. McKinnon By Horioka, Charles Yuji
  12. Neoliberalism, trade imbalances and economic policy in the Eurozone crisis By Constantine, Collin; Reissl, Severin; Stockhammer, Engelbert

  1. By: Evers, Maria Theresia; Meier, Ina; Nicolay, Katharina
    Abstract: We examine how a comprehensive change in book-tax conformity affects firms' reporting behavior. To this end, we exploit a Reform Act as a quasi-natural experiment which implied a decrease in book-tax conformity in Germany in 2010. In particular, this reform allows firms to exercise tax accounting options independently from financial accounting. Our study builds on a unique dataset of linked individual financial statements and actual tax return data. It covers roughly 150 incorporated firms for the years 2008 to 2012. Exploiting the exceptional change in conformity, we contribute to the ongoing debate on the impact of booktax conformity. Our results show that profitable companies, which have a clear tax sheltering incentive, actually use the newly introduced reporting leeway to manage taxable income downwards. This is especially attributable to companies exploiting favorable tax depreciation rules. Moreover, we find larger opportunistic tax reporting responses for small companies with less complex and predominantly domestic group structures. In addition, we observe that a decrease in book-tax conformity induces a decrease in the general persistence of taxable income, but at the same time gives rise to higher financial earnings persistence. This corroborates our finding of increased tax sheltering activity in post reform years.
    Keywords: book-tax conformity,book-tax differences,tax sheltering,earnings persistence
    JEL: H20 H25 K34 M41
    Date: 2016
  2. By: Uddin, Md Akther; Sultan, Yousuf; Hosen, Mosharrof; Ullah, Nazim
    Abstract: Sukuk has been playing a significant role in developing Islamic finance, more specifically, Islamic capital market. Islamic financial institutions have very limited number of liquid investments other than hard cash to hold as conventional short-term bonds, commercial papers and notes are interest based and prohibited in Shari’ah. The rapid growth in Sukuk market not only in Malaysia but also internationally indicates huge potential of this innovative financial instrument. In this paper, an attempt has been made to study accounting issues connected with Sunway treasury sukuk and we discussed in details financial performance of Sunway group, accounting disclosure needed for Sukuk issuance, model accounting treatment of Mudarabah sukuk in general and Sunway Treasury Sukuk in specific, in depth analysis of Shari’ah issues related with the Sukuk, various risks associated with it. Our analysis shows that Sunway Group is a one of the leading construction and development in company in Malaysia and it has presence in other south-east Asian country also in India. The slowing down in real-estate industry has put a lot of pressure on Sunway and it has been evident in the financial statements of the company. We found that accounting of Sukuk is not necessarily different from conventional bond, even though, we consider Sukuk to be closer to equity but in reality it is closer to debt. Analysis shows that IFRS and AAOIFI accounting have different objectives and perspectives. Subsequently, IFRS is more concerned with the substance, while AAOIFI focuses on legal form while considering accounting transactions, however, Sukuk in both cases are shown as a liability in the balance sheet. It is found that some authors argue that in addition to preparing its own accounts as SPV, accounts should be prepared for the investment fund represented by the sukuk in accordance with Financial Accounting Standard 14 "Investment Funds". Capital guarantee, fixed rate Mudarabah, later payment charge, promise to buy back are found to be critical Shari’ah issues in Sunway Treasury Sukuk. Default risk in Treasury sukuk is very low considering company reputation and its huge fixed asset back of more than 3000 acres of land. The sukuk has some sort of market risk, namely interest rate/profit rate risk in rising interest rate environment. Shari’ah risk found to be the main problem of this Sukuk.
    Keywords: AAOIFI, IFRS, Islamic finance, Shari’ah, Sukuk
    JEL: A10 G1 G12
    Date: 2015–11–14
  3. By: Afonso, Sérgio
    Abstract: This paper argues that austerity is not a good solution for fiscal consolidation and sustainability. Therefore, it is imperative to find a new approach. This paper presents a mechanism to improve both tax compliance and fiscal sustainability.
    Keywords: fiscal consolidation, fiscal sustainability, formalization
    JEL: H21 H26 H30 H61 H63
    Date: 2016–01–23
  4. By: Zhirova, Galina (Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The article considers the pre-trial procedure for settlement of disputes, analyzes the conflicts between the tax authorities and taxpayers. In the review of decisions on complaints, the results of which were substantiated the arguments of taxpayers, noted that the main reasons for satisfaction of tax disputes are the wrong application of norms of tax legislation, lack of evidence, violations by the tax authority established by the Tax code of the Russian Federation procedures for the collection of taxes, procedure for consideration of tax inspection materials and established procedures governing the timing of tax control measures and the processing of their results. It also justifies the proposals on the introduction of a mediation procedure and settlement agreements as an alternative method of resolving the conflicts.
    Keywords: tax disputes, tax inspections, pre-trial settlement of disputes, the institute of mediation, the settlement agreement
    Date: 2015
  5. By: Al-Saffar, Yaser (Bank of England); Ridinger, Wolfgang (Bank of England); Whitaker, Simon (Bank of England)
    Abstract: Gross external balance sheets are important in explaining the incidence of the financial crisis across economies. Just as for banks, leverage of the national balance sheet was an indicator of subsequent vulnerability. Countries that also experienced strong domestic credit growth, in part fuelled by ‘savings glut’ net capital inflows, suffered particularly badly. And banks’ balance sheets were critical in the transmission mechanism: high gross external interbank debt — the ‘banking glut’ — and maturity and currency mismatches, contributed to foreign rollover risk.
    Keywords: financial crises; external balance sheets
    JEL: G01
    Date: 2015–10–25
  6. By: Grodecka, Anna (Financial Stability Department, Central Bank of Sweden); Kotidis, Antonis (Department of Economics)
    Abstract: We investigate the effects of the abolition of double liability requirement imposed on bank shareholders in Canada on bank risk-taking and lending behavior. Under the double liability rule, the shareholders of a bank were liable up to twice the amount of their subscribed shares in the case of bankruptcy. With the establishment of the Bank of Canada in 1934, the double liability requirement became less stringent and depended on the pace of the redemption of notes in circulation issued by the individual chartered commercial banks. Using historical balance sheet and accounting data, we show that the abolition of double liability was not accompanied by increased bank risk taking in Canada. Our ndings are consistent with the literature that focuses on uniform regulations and nationwide branching as key nancial stability elements in Canada.
    Keywords: Double Liability; Bank Risk-Taking; Leverage; Canadian banks; Financial Stability
    JEL: E44 G21 G28 N22
    Date: 2016–02–01
  7. By: John FitzGerald (Department of Economics, Trinity College Dublin); Philip Lane (Department of Economics, Trinity College Dublin)
    Abstract: Governments actively manage the public balance sheet during episodes of financial distress. Under these circumstances, the stock of gross public debt is not a sufficient statistic for fiscal sustainability. In this paper, we examine the roles of financial asset acquisition, liquidity management, debt management and the central bank balance sheet in determining the fiscal health of a government. We argue that a strategy of “under-promising and over-delivering” is essential in restoring market access.
    Keywords: Government balance sheet, public debt, management of debt
    JEL: H63 E58
    Date: 2016–02
  8. By: Bertola, Giuseppe; Lo Prete, Anna
    Abstract: We analyze the implications of labor market reforms for an open economy’s human capital investment and future production. A stylized model shows that labor market deregulation can imply more positive current account balances if financial markets are imperfect and labor market institutions not only distort labor allocation, but also smooth income. Empirically, in OECD country-level panel data, we find that labor market deregulation has been positively related to current account surpluses on average and more strongly so when and where financial market access was more limited. These results are robust to inclusion of standard determinants of current account imbalances, and do not appear to be driven by cyclical phenomena.
    Keywords: labor market deregulation; precautionary savings
    JEL: E44 F32 J08
    Date: 2015–02
  9. By: Unver, Mustafa; Dogru, Bulent
    Abstract: This paper makes an empirical investigation of the determinants of fragility in terms of long-term fiscal sustainability and sovereign ratings for Brazil, India, Indonesia, South Africa and Turkey, referred to as the “fragile five” by Morgan Stanley (2013), using the Fully Modified Ordinary Least Square (FMOLS) approach developed by Phillips and Hansen (1990). The dataset covers the 1980–2012 period for fiscal sustainability and 1990–2012 for sovereign ratings in these countries. The study revealed a statistically significant relationship between fiscal sustainability and current account balance, gross domestic product (GDP), total reserves, energy imports, exchange rate, external debt and credit to the private sector, while the findings associated with sovereign ratings demonstrate significantly that the leading determinants of sovereign ratings are exchange rates, total reserves, energy imports, foreign direct investment (FDI) net inflows, current account balance, GDP and external debt stocks.
    Keywords: Fragile Five, Fiscal Sustainability, Sovereign Ratings, Macroeconomics, FMOLS Approach
    JEL: G01 H63
    Date: 2015–05
  10. By: Mirdala, Rajmund
    Abstract: The lack of nominal exchange rate flexibility in the monetary union induced the growing divergence of trade performance among the member countries. Intra-Eurozone current account imbalances among countries with different income levels per capita fuel discussions on competitiveness channels under common currency. Asynchronous current account trends between North and South of the Euro Area were accompanied by significant appreciations of real exchange rate in the periphery economies originating in the strong shifts in consumer prices and unit labor costs in these countries relative to the countries of the Euro Area core. The issue is whether the real exchange rate is a significant driver of persisting current account imbalances in the Euro Area considering than, according to some authors, differences in domestic demand are more important than is often realized. In the paper we analyze main aspects of current account adjustments in the Euro Area member countries. From estimated VAR model we calculate impulse-response function of the current account to the real exchange rate (REER calculated on CPI and ULC base) and domestic demand shocks and variance decomposition to examine the relative importance of both shocks. Our results indicate that while the prices and costs related determinants of external competitiveness affected imports more significantly than exports, demand drivers shaped current account balances mainly during the crisis period.
    Keywords: current account, real exchange rate, economic crisis, vector autoregression, impulse-response function, variance decomposition
    JEL: C32 F32 F41
    Date: 2015–09
  11. By: Horioka, Charles Yuji
    Abstract: In this paper, I find (1) that Japan showed massive and persistent current account surpluses from at least 1981 and until at least 2011, (2) that Professor Ronald McKinnon was correct, at least in the case of Japan, and that these large and persistent current account surpluses were due primarily to Japan's large and persistent IS imbalances (the excess of saving over investment), (3) that the specific causes of the IS imbalances have changed dramatically over time, and (4) that future trends in Japan's IS imbalances (current account surpluses) are difficult to project but that they will probably not change dramatically in either direction in the foreseeable future.
    Keywords: IS imbalances, IS balances, saving-investment balances, global imbalances, current account surpluses, current account balances, trade balances, saving, household saving, corporate saving, government saving, investment, population aging, Ronald McKinnon, Japan
    JEL: D14 D91 E21 F21 F32 H62
    Date: 2015–08
  12. By: Constantine, Collin (Kingston University London); Reissl, Severin (Kingston University London); Stockhammer, Engelbert (Kingston University London)
    Abstract: This paper analyses the causes of the Eurozone crisis. In doing so it carefully surveys authors from different economic schools of thought. The paper discusses competing explanations for European current account imbalances. Remarkably, opposing views on the relative importance of cost developments and of demand developments in explaining current account imbalances can be found in both heterodox and orthodox economics and there is a remarkable variability of policy conclusions. Regarding the assessment of fiscal and monetary policy there is a clearer polarisation, with heterodox analysis regarding austerity as unhelpful and most of orthodox economics endorsing it. We advocate a post-Keynesian view which holds that current account imbalances are not a fundamental cause of the sovereign debt crisis. Rather, the economic policy architecture of the Eurozone, which aims at restricting the role of fiscal and monetary policy, is the key to understanding the crisis in Europe.
    Keywords: Euro crisis; neoliberalism; European economic policy; financial crisis; sovereign debt crisis; current account balance
    JEL: B50 E60
    Date: 2016–02–17

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