nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒03‒06
eight papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Financial Stability Paper 31: Understanding the fair value of banks’ loans By Knott, Samuel; Richardson, Peter; Rismanchi, Katie; Sen, Kallol
  2. Taxing away M&A: The effect of corporate capital gains taxes on acquisition activity By Feld, Lars P.; Ruf, Martin; Schreiber, Ulrich; Todtenhaupt, Maximilian; Voget, Johannes
  3. Do higher corporate taxes reduce wages? Micro evidence from Germany By Fuest, Clemens; Peichl, Andreas; Siegloch, Sebastian
  4. Green accounting, institutional quality and investment decisions: Macroeconomic implications from an analysis of the oil and mining sector By Stöver, Jana
  5. Audit fees, Non-audit fees and Coporate Performance By Cinderela Andrade dos Santos; António Cerqueira; Elísio Brandão
  6. Accounting of pay-as-you-go pension schemes using accrued-to-date liabilities: An example for Switzerland By Metzger, Christoph
  7. Covenant as an instrument of financial risk management By Kondratjev, Alexey
  8. The sustainability of Scottish public finances: a Generational Accounting approach By Katerina Lisenkova; Miguel Sanchez-Martinez; James Sefton

  1. By: Knott, Samuel (Bank of England); Richardson, Peter (Bank of England); Rismanchi, Katie (Bank of England); Sen, Kallol (Bank of England)
    Abstract: ​Loans are typically the largest asset class on banks’ balance sheets. So understanding the value of loans is vital to any assessment of the resilience of the banking system. This is not straightforward. The market value of loans is seldom observable. And the nature and diversity of banks’ loans has changed markedly over time: the maturity of loans has increased, on average; banks’ mortgage lending has ballooned; and banks use more hard information in their lending decisions. So it is unlikely that any one valuation technique will capture all relevant aspects of valuation across all types of loans. Recognising this, banks are required by accounting standards to disclose the fair value of their loans in the notes to their accounts. At the end of 2013, the fair value of the major UK banks’ loans was £55 billion less than the amortised cost value. This paper explains loan fair value techniques and compares these to other valuation approaches. Fair value approaches include elements of valuation that are not captured by amortised cost approaches, such as lifetime expected credit losses and embedded interest rate gains and losses. As such, fair value disclosures might provide additional insight into the value of some assets, such as longer-term, fixed-rate loans, like mortgages. But loan fair values, like all loan valuation approaches, come with a number of health warnings. For example, they may capture factors that do not necessarily have a bearing on banks’ resilience. As a result, a loan fair value number on its own is often insufficient, which suggests that there may be benefits to improved supplementary disclosures about the drivers of the fair value of banks’ loans to complement balance sheet values.
    Keywords: bank regulation; fair value
    JEL: G28
    Date: 2014–11–28
  2. By: Feld, Lars P.; Ruf, Martin; Schreiber, Ulrich; Todtenhaupt, Maximilian; Voget, Johannes
    Abstract: Taxing capital gains is an important obstacle to the efficient allocation of resources because it imposes a transaction cost on the vendor which locks in appreciated assets by raising the vendor's reservation price in prospective transactions. For M&As, this effect has been intensively studied with regard to shareholder taxation, whereas empirical evidence on the effect of capital gains taxes paid by corporations is scarce. This paper analyzes how corporate level taxation of capital gains affects inter-corporate M&As. Studying several substantial tax reforms in a panel of 30 countries for the period of 2002-2013, we identify a significant lock-in effect. Results from estimating a Poisson pseudo-maximum-likelihood (PPML) model suggest that a one percentage point decrease in the corporate capital gains tax rate would raise both the number and the total deal value of acquisitions by about 1.1% per year. We use this result to estimate an efficiency loss resulting from corporate capital gains taxation of 3-06 bn USD per year in the United States.
    Keywords: corporate taxation,M&A,capital gains tax,lock-in effect
    JEL: H25 G34
    Date: 2016
  3. By: Fuest, Clemens; Peichl, Andreas; Siegloch, Sebastian
    Abstract: This paper estimates the incidence of corporate taxes on wages using a 20-year panel of German municipalities. Administrative linked employer-employee data allows estimating heterogeneous worker and firm effects. We set up a general theoretical framework showing that corporate taxes can have a negative effect on wages in various labor market models. Using an event study design, we test the predictions of the theory. Our results indicate that workers bear about 40% of the total tax burden. Empirically, we confirm the importance of both labor market institutions and profit shifting possibilities for the incidence of corporate taxes on wages.
    Keywords: business tax,wage incidence,administrative data,local taxation
    JEL: H2 H7 J3
    Date: 2016
  4. By: Stöver, Jana
    Abstract: This paper investigates the effect of institutional quality on sustainable development.Institutional quality is assumed to determine the (perceived) risk in the face of which oil and mining firms determine their level of investment in physical and natural capital. Since these two types of capital are used jointly in the industry's production process, the firms face a dual investment decision, whereby they have to decide on the investment into both types of capital simultaneously. It is shown that this production structure implies that better institutional quality can increase as well as decrease the speed of resource extraction. However, due to the structure of national accounting data, this fact has so far not been adequately accounted for in preceding studies. By integrating the dual investment model into the green accounting approach it is then shown that the form of capital aggregation in national accounting can lead to an underestimation of the effect of institutional quality on sustainable development and potentially on economic growth. The results imply that it could be useful to investigate the macroeconomic effects of institutional quality on the oil and mining sector separately from those on the rest of the economy.
    Keywords: exhaustible resource extraction,institutions,ownership risk,resource curse,adjusted net saving / genuine saving,green accounting,sustainable development
    JEL: Q32 Q56 Q01
    Date: 2016
  5. By: Cinderela Andrade dos Santos (FEP-UP, School of Economics and Management, University of Porto); António Cerqueira (FEP-UP, School of Economics and Management, University of Porto); Elísio Brandão (FEP-UP, School of Economics and Management, University of Porto)
    Abstract: Our research examines whether audit and non-audit fees are associated with firm performance, so, we study this relationship taking into account the impact of operating and corporate governance characteristics on firm performance. The sample in study is non-financial firms in S&P 500 covering the period from 2002 to 2014. We find a significant negative relationship between corporate performance and non-audit fees. This suggests that the increase (decrease) in corporate performance is related to the decrease (increase) in non-audit fees. The results add to the growing body of literature documenting relations between firm performance and remuneration of audit services, as well as to our understanding of the determinants of corporate performance. Furthermore, this study highlights the possible matter of providing non-audit services jointly with audit services, confine the functions of an auditor and consequently compromise the independence, that ultimately decrease the firm performance.
    Keywords: Audit Fees, Non-Audit Fees, Corporate Performance, Corporate Governance
    JEL: G30 M42
    Date: 2016–02
  6. By: Metzger, Christoph
    Abstract: Due to demographic change, the fiscal sustainability of pension schemes financed on a pay-as-you-go (PAYGO) basis is of more interest for policy makers than ever. Unsustainable financing brings along a future burden to pensioners through pension cuts and/or to the working population through increasing contribution rates. With comparable data about the unfunded accrued-to-date pension liabilities of social security pension schemes soon being available due to a recent update of the international System of National Accounts (2008 SNA), we present a simple framework for accounting of paygo pension schemes using these estimates of accrued-to-date liabilities. Additionally we incorporate another definition of liabilities, the current workers' and pensioners' net liabilities (CWL). Applying this accounting framework using both definitions of liabilities to the Swiss pension scheme (AHV), we show that financing of the AHV is unsustainable. In order to restore fiscal sustainability either an increase in the contribution rate to 12 percent or a cut in average pension levels of about 38 percent would be necessary.
    Keywords: accounting of pension schemes,accrued-to-date liabilities,supplementary table,fiscal sustainability
    JEL: E01 H55 H83 H87
    Date: 2016
  7. By: Kondratjev, Alexey (Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The problems of application of covenants in Russia, showing the direction of improving their use: to recognize covenants legitimate financial tool in the federal legislation, supplemented by regulations order of their legal regulation, delegate the conduct of all of its financial covenants audit companies, enter into the business turnover of the position of the owner of the bonds authorized to demand early the repayment or redemption of any breach of the covenant, to recommend the commercial banks to monitor the financial covenants under the credit risk assessment, and develop regulations for their application.
    Keywords: covenant, risk-management, debt, credit risk
    Date: 2015
  8. By: Katerina Lisenkova; Miguel Sanchez-Martinez; James Sefton
    Abstract: This paper analyses the long-term sustainability and intergenerational equity of the Scottish public finances by employing a generational accounting model. This represents a novel approach to analysing these issues in the case of Scotland, while having the advantage of capturing policy-relevant intergenerational aspects. We find that, under the baseline scenario, assuming that Scotland has “full fiscal autonomy”, large intertemporal and intergenerational fiscal gaps open up. The three main reasons behind this result are: declining North Sea revenues, a budget deficit at the beginning of the simulation period and a widening gap over time primarily due to population ageing. The model suggests that both the intertemporal fiscal and generational imbalances can be addressed via a permanent increase in taxes equivalent to about 8.5 per cent of Scottish GDP, levied on both living and future generations.
    Date: 2015–09

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