nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒07‒23
nine papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Impact of Control Systems on Board’s Forecast Accuracy: By Tor Brunzell; Emmanouel Parasiris
  2. Empirical Analysis on Industry Specialization of Audit Firms and Its Audit Quality By Ryo Kato; Hu Dan Semba
  3. Beggar-Thy-Neighbour Tax Cuts: Mobility after a Local Income and Wealth Tax Reform in Switzerland By Martinez, Isabel Z.
  4. Is financial VAT neutral to financial sector size? By López-Laborda, Julio; Peña, Guillermo
  5. The impact of labour tax costs on the company strategic decision making and internal action plan to control ta By Biruta Pule; Gunta Innuse
  6. The effects of replacing income tax with consumption tax on the state and the individual: a Canadian example By Jim Fischer
  7. Intergovernmental transfers and expenditure arrears By Paolo Chiades; Luciano Greco; Vanni Mengotto; Luigi Moretti; Paola Valbonesi
  8. OECD Taxonomy of Economic Activities Based on R&D Intensity By Fernando Galindo-Rueda; Fabien Verger
  9. Stimulating investment through incorporation By Michael Devereux; Li Liu

  1. By: Tor Brunzell (Stockholm Businss school, Stockholm University); Emmanouel Parasiris (Stockholm Business School, Stockholm University)
    Abstract: In this paper we study what impact the control systems has on the chairperson’s five year fore-casts accuracy on net sales growth as well as the control systems effect on the chairperson’s perception on the board work. The control systems we take into account in this study are: audit committee, employee representation on the board, and reports to the board. In order to pre-vent a repetition of the early 2000 accounting scandals, countries introduced and/or updated their legislations on the audit committee and internal audit shortly after. The study is based on 2007 data when it was non-mandatory employment of internal audit using a unique sample col-lected from the Nordic countries. The results of the study suggest the employment of the inter-nal audit function by internal auditors has a positive impact on both chairpersons’ ability to forecast sales growth and perception of the work of the audit committee. However, we do not find the impact for companies that use external auditors to employ the internal audit function.
    Keywords: Control systems, internal auditing, internal control, audit committee, corporate governance, forecast accuracy, board of directors.
    JEL: G18 G38 K22
  2. By: Ryo Kato (Graduate School of Economics, Keio University); Hu Dan Semba (School of Economics, Nagoya University)
    Abstract: This study aims to empirically examine the influence of the auditor's industry specialization on its audit quality. Following the dissolution of ChuoAoyama?PricewaterhouseCoopers in 2007, the Japanese Big N audit market changed from Big 4 regime to Big 3 regime. Consistent with previous studies, absolute discretionary accruals are used as a proxy for audit quality along with six proxy variables for audit industry specialization. Additionally, we employed propensity score adjustment as a causal inference framework in order to lead more robust results. After analyzing a sample of publicly listed Japanese firms for fiscal years 2001 to 2006 (Big 4 period) and 2008 to 2012 (Big 3 period), we find that Japanese auditors perform higher quality audits during whole period. In addition, industry-specialized auditors' audit quality increases at a higher rate than for non-industry-specialized auditors in the Big 3 period compared to the Big 4 period.
    Keywords: Audit Quality, Industry Specialization, Causal Inference, Propensity Score, IPW
    JEL: M41 M42
    Date: 2016–06–17
  3. By: Martinez, Isabel Z.
    Abstract: Tax competition raises the question to which extent taxpayers respond to differences in income tax rates by migrating to low-tax areas. This paper analyzes a large, two-step tax reform in the canton of Obwalden in central Switzerland in 2006 and 2008. The canton first introduced a regressive income tax scheme with the explicit purpose of attracting affluent taxpayers, followed by a flat rate tax, thereby lowering taxes for all taxpayers. DiD estimations comparing Obwalden and two neighboring cantons confirm that the reform was successful in increasing the canton’s tax base by increasing the share of rich and their average income. Using individual tax data I apply a 2SLS approach to estimate how responsive migration was to the tax reduction. I find an elasticity of the stock of rich taxpayers in the canton with respect to the average net-of-tax rate of 1.9–2.4. The elasticity of the inflow of rich taxpayers is even larger, ranging from 5 to 12. These large elasticities can be explained by (i) the large pool of intentionally treated in the present institutional setting, which puts almost no restrictions on taxpayers to take advantage of the low tax, and (ii) the initially low share of rich taxpayers in Obwalden combined with the small size of the canton. A small number of rich taxpayers relocating therefore translates into a large elasticity. DiD estimates of cantonal revenue, however, suggest that the tax cuts despite attracting and retaining a substantial number of rich taxpayers, did not lead to an increase
    Keywords: Tax-induced mobility; Personal income tax; Local taxes; Tax competition; Elasticity of taxable income ETI
    JEL: H71 H73 R23 H31 H24
    Date: 2016–05
  4. By: López-Laborda, Julio; Peña, Guillermo
    Abstract: The influence of the taxation of financial services in VAT on financial sector size is analyzed empirically. The authors use data from 36 countries of the European Union and the OECD for the period between 1961 and 2012. Dynamic panel data techniques are used, concretely the GMM System. An unbalanced panel is handled. The results allow them to support the theoretical analysis that states financial VAT has no significant effect on financial sector development, being neutral in relation to this variable. Results are robust to the specifications of the dependent variable.
    Keywords: financial VAT,panel data,financial depth
    JEL: H25 H21 E62 E44 G21
    Date: 2016
  5. By: Biruta Pule (BA School of Business and Finance); Gunta Innuse (BA School of Business and Finance)
    Abstract: The company sustainable development is closely linked with the control of expenses and the ways how to reduce its impact on company cash flow. In Baltic countries business environment is becoming less attractive as a result of tax burden. It encourages tax payers to seek alternative solutions for the reduction of tax burden, especially in relation to labour tax costs and its impact on company cash flow. The article focuses on the assumption that the impact of labour tax costs on business environment in Lithuania and Estonia is much more favourable than in Latvia. Having evaluated labour costs and taking into consideration that they occur under the same production conditions in each of the Baltic countries, we can draw the conclusion that such assumption is false. It cannot be applied in strategic decision making and internal action plan design. When developing tax planning strategy in companies by considering which taxes create the heaviest tax burden, as well as by looking at the ways how it affects investment and company expenses, the calculations have been carried out that lead to the conclusion that tax policy in all Baltic countries and its impact on business environment is similar. Therefore, strategic decision to move business from one territory of the country to another country could turn out to be inefficient. Such decision does not refer to internal action plan of controlling tax payment administration in the company. The analysis indicates significant differences in administration of national taxation.
    Keywords: tax burden, labour costs and taxes, management of tax payment
  6. By: Jim Fischer (Mount Royal University)
    Abstract: Consumption tax has been lauded as an alternative to income tax, in that it promotes savings and investment, and enables increased consumption over time. Despite these claims, no state has opted to replace income tax with consumption tax as the prime source of revenue. It is proposed that when consumption tax replaces income tax as the means of financing the state, investment increases, individuals are able to consume more over a lifetime, and levels of government revenue can be maintained. This study compares an average Canadian taxpayer in Canada’s current hybrid tax regime with a taxpayer in a hypothetical consumption tax regime. The rate of consumption tax is calculated to provide the equivalent amount of revenue the Canadian government currently receives. Comparisons are made between the two regimes in three scenarios to reflect different taxpayer behavior: holding investment steady, holding consumption steady, and maximizing the use of current tax shelters. The study concludes that in any scenario, individuals are able to enjoy more total consumption and purchasing power over time, adjusted for inflation, when a consumption tax substitutes for income tax. On the other hand, government revenue received from the average taxpayer in some scenarios is less when consumption tax replaces income tax, and is more in others. Government revenue was more when comparisons were made between taxpayers in the income tax regime who made use of current tax shelters, and those in the consumption tax regime who maximized their investment. This is the ideal behavior one would expect of taxpayers who are left with more disposable income. Opportunities for further study are suggested.
    Keywords: consumption tax, income tax, government revenue, tax policy
    JEL: H27 E21 D31
  7. By: Paolo Chiades (Bank of Italy); Luciano Greco (University of Padova); Vanni Mengotto (Bank of Italy); Luigi Moretti (University of Bologna); Paola Valbonesi (University of Padova)
    Abstract: Local governments may increase expenditure arrears to relax the financial constraints induced by intergovernmental transfer cuts. We assess this hypothesis using information from accounting and financial reports from Italian municipalities for the period 2003-2010. By exploiting the long-lasting effect of the 1977-1978 structural reform of Italian local public finance, we employ an instrumental variable approach to address endogeneity concerns. We find robust empirical evidence that the lower the intergovernmental grants, the larger the use of arrears in public investment expenditures by municipalities. We argue that, when local governments are not subject to effective controls on the formation of arrears but fiscal rules impose binding budget constraints, a cut in intergovernmental transfers can partially diminish the effectiveness of fiscal consolidation at local level.
    Keywords: local public finance, fiscal consolidation, fiscal rules, instrumental variables
    JEL: H30 H72 H77 C33 C36
    Date: 2016–07
  8. By: Fernando Galindo-Rueda; Fabien Verger
    Abstract: This paper provides a new taxonomy of industries according to their level of R&D intensity - the ratio of R&D to value added within an industry. Manufacturing and non-manufacturing activities are clustered into five groups (high, medium-high, medium, medium-low, and low R&D intensity industries), drawing on new and expanded evidence from most OECD countries and some partner economies. This paper also reports on differences in R&D intensity within industries across countries. This document represents an update and reframing of previous OECD taxonomies based on earlier versions of the International Standard Industrial Classification (ISIC), including services, whose coverage has improved in the R&D tables published by OECD (ANBERD). This taxonomy aims to support the presentation of statistics for industry groups when R&D is a relevant discriminant factor. Other existing or in-development taxonomies may be more appropriate for capturing differences in overall knowledge intensity or technology use.
    Date: 2016–07–16
  9. By: Michael Devereux (Oxford University Centre for Business Taxations); Li Liu (Oxford University Centre for Business Taxations)
    Abstract: We examine the effect of incorporation in stimulating small business investment. Exploring a 2006 UK tax reform that lowered the tax gain to incorporation and reduced the after-tax internal funds for small companies, we present three main results. First, a one-percentage-point reduction in the tax gain decreased the number of new incorporations by 4.5 percent. Second, on average, a ¡ê 1 reduction in the post-tax internal funds of newly-incorporated firms would reduce their investment by 90 pence, consistent with them facing severe financial constraints. Third, this impact on investment gradually diminished after incorporation, consistent with incorporation improving access to external finance.
    Date: 2016

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