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on Accounting and Auditing |
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Issue of 2017‒04‒09
ten papers chosen by |
| By: | Christian A. Vossler (Department of Economics, University of Tennessee); Scott M. Gilpatric (Department of Economics, University of Tennessee) |
| Abstract: | In recent years there has been a sharp rise in the information available to individual income taxpayers, such as through tax preparation software provided by third parties and support available by tax agencies, although the effects of this information on tax reporting is not well understood. Within a setting characterized by an endogenous audit process and taxpayer uncertainty, this study uses theory and laboratory experiments to investigate the effects of taxpayer assistance services that better inform taxpayers about their tax liability and the audit process. The endogenous audit rule we study is simple, yet relative to existing work is more likely to characterize the actual incentives facing taxpayers. Among our findings, and in contrast to the case of purely random audits, in theory the effect of information services on tax underreporting is ambiguous, and we find support empirically for increased tax underreporting even in a setting where theory predicts the opposite. When services provide better information on both liability and the audit process, audit information is more salient to participants, negating the strong effects observed when only liability information is provided. |
| Keywords: | individual income tax; taxpayer assistance services; endogenous audits; tax reporting and enforcement; experimental methods |
| JEL: | C91 D8 H24 H26 H83 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ten:wpaper:2017-01&r=acc |
| By: | Abdullah, Azrul; Ku Ismail, Ku Nor Izah |
| Abstract: | This study examines the effectiveness of Risk Management Committee (RMC) in influencing hedge accounting practices among non-financial companies listed on the Bursa Malaysia. Our regression results reveal that that there is no significant relationship between the application of hedge accounting and the effectiveness of RMCs. However, there are positive and significant relationships between the choice of hedge accounting and each of company size and leverage. The implications of the findings were discussed. |
| Keywords: | Hedge Accounting, Hedging Activities, Risk Management Committee, Corporate Governance, Financial Reporting |
| JEL: | M40 M41 M48 M49 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77960&r=acc |
| By: | Jonathan Pycroft; María Teresa Álvarez-Martinez; Salvador Barrios; Maria Gesualdo; Dimitris Pontikakis |
| Abstract: | Corporate tax reforms in the EU are motivated by evidence that the current system is unfair and inefficient. Uncoordinated national tax regimes can feature tax loopholes and inconsistencies in the treatment of corporate profits across borders that give rise to strategic tax planning by multinational corporations. There is growing recognition of these issues and a renewed impetus to address them. Attempts to improve international coordination of national corporate tax policies are being undertaken through the OECD Base Erosion and Profit Shifting (BEPS) Project. In this paper, we evaluate the effects that changing the corporate income tax (CIT) rate may have on EU countries using a Computable General Equilibrium (CGE) model. The model captures the key features of the corporate tax regimes including investment decisions, loss compensation, multinational profit shifting and the debt-equity choice of firms. This is a multi-regional model including all 28 EU member states, the USA and Japan. It encapsulates the behaviour of all economic agents, reflecting both the direct and indirect effects of policy changes on macroeconomic variables, such as GDP, investment and employment. We simulate the impact of removing differences in corporate tax rates across EU countries and their effect on tax competition considering both uncoordinated and coordinated changes. For each of the three simulations, revenue neutrality is maintained by adjusting labour taxes to compensate for any revenue increase or shortfall caused. In addition, sensitivity analysis is performed, ensuring budget neutrality through adjusting transfer to pensioners or government expenditure. We first consider simulations where one country raises or lowers its rate in isolation. We simulate an upward adjustment in a low CIT tax economy, namely Ireland, up to the level of a higher tax economy, namely Germany. These two countries represent to polar examples since Ireland has the lowest statutory CIT rate in the EU and in Germany, which is the largest country in the Union, the CIT rate is among the highest. Second, we simulate the reverse case, where Germany reduces its rate to the Irish level. In each case, we observe the impact on the country affected as well as the international spillover effects. The third simulation supposes that all EU member states choose to harmonise their CIT rates at the EU average level. The first two simulations reveal that a tax shift from labour tax to corporate tax (Ireland) has a negative impact on GDP, whilst a tax shift from corporate tax to labour tax (Germany) has a positive impact on GDP. On the other hand, the impact on (after-tax) wages moves in the opposite direction. As anticipated, the German CIT rate simulation causes larger spillover effects, with all other countries' GDP being negatively affected to some degree. Nevertheless, the benefits to Germany are sufficient to slightly raise EU GDP by 0.19 percent. The third simulation, where CIT rates are harmonised across the EU, tends to suggest that a tax shift from corporate tax to labour tax raises GDP, whilst the opposite tax shift lowers GDP; this holds true for 22 out of 28 EU countries. The aggregate impact is a small fall in EU GDP of 0.13 percent. This result broadly holds for the alternative budget-neutral closures. A benefit of CIT rate harmonisation is that it removes much of the incentive to engage in profit shifting. We conclude that reforming corporate taxes can generate substantial responses within the implementing country as well as beyond its own borders. Harmonisation of CIT rates would likely involve winners and losers, and as such, may be best pursued gradually and as part of a broader package of corporate tax reform. |
| Keywords: | European Union, Tax policy, General equilibrium modeling |
| Date: | 2016–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:009007:9324&r=acc |
| By: | Masaki Kusano |
| Abstract: | The purpose of this study is to examine the effects of constructively capitalizing operating leases on credit ratings in Japan. In particular, this study investigates whether and how a credit rating agency considers operating lease information when determining credit ratings. First, this study shows that constructively capitalized operating leases are associated with credit ratings. Second, this study finds that the associations between credit ratings and operating leases versus finance leases are not substantially different. However, when operating lease disclosures are less reliable, this study finds that operating leases are not associated with credit ratings and that the risk relevance of operating leases is substantially different from that of finance leases. This study reports that the reliability of accounting information has significant effects on the risk relevance of operating leases. These results indicate that a credit rating agency considers operating lease information in determining credit ratings to the extent that this information is reliable. This study contributes to the literature on the usefulness of operating lease disclosures and to the discussions on the global convergence of accounting standards. |
| Keywords: | Constructive Capitalization, Operating Leases, Risk Relevance, Reliability |
| JEL: | M41 M48 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:kue:epaper:e-16-016&r=acc |
| By: | Somdutta Basu; Suraj Shekhar |
| Abstract: | We demonstrate a tension between monitoring and reputation incentives when moving from collective reputation environments to individual reputation environments by analyzing a new rule. After January 2017, the name of the engagement partner has to be disclosed in all audit reports issued in the USA. We study the resulting change in auditor incentives and show that while the consequent higher reputation incentives can improve audit quality, partners have a lower incentive to monitor other partners when names are disclosed. This may lead to a fall in audit quality when the rule is implemented. We present several solutions to this problem. |
| Keywords: | PCAOB, Audit, Disclosure, Collective Reputation, Engagement partner, Reputation, Monitoring |
| JEL: | L14 L51 M42 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:675&r=acc |
| By: | Barrios Cobos, Salvador; Dolls, Mathias; Maftei, Anamaria; Peichl, Andreas; Riscado, Sara; Varga, Janos; Wittneben, Christian |
| Abstract: | In this paper, we present the first dynamic scoring exercise linking a multi-country microsimulation and DSGE models for all countries of the European Union. We illustrate our novel methodology analysing a hypothetical tax reform for Belgium. We then evaluate real tax reforms in Italy and Poland. Our approach takes into account the feedback effects resulting from adjustments in the labor market and the economy-wide reaction to the tax policy changes. Our results suggest that accounting for the behavioral reaction and macroeconomic feedback to tax policy changes enriches the tax reforms' analysis, by increasing the accuracy of the direct fiscal and distributional impact assessment provided by the microsimulation model for the tax reforms considered. Our results are in line with previous dynamic scoring exercises, showing that most tax reforms entail relatively smaller feedback effects in terms of the labor tax revenues for tax cuts benefiting workers, compared with the ones granted to firms. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:17017&r=acc |
| By: | Lu Zhang |
| Abstract: | A new class of Capital Asset Pricing Models (CAPM) arises from the first principle of real investment for individual firms. Conceptually as "causal"' as the consumption CAPM, yet empirically more tractable, the investment CAPM emerges as a leading asset pricing paradigm. Firms do a good job in aligning investment policies with costs of capital, and this alignment drives many empirical patterns that are anomalous in the consumption CAPM. Most important, integrating the anomalies literature in finance and accounting with neoclassical economics, the investment CAPM succeeds in mounting an efficient markets counterrevolution to behavioral finance in the past 15 years. |
| JEL: | E13 E22 G12 G14 G31 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23226&r=acc |
| By: | Osmundsen, Petter (UiS); Lovas, Kjell; Emhjellen, Magne |
| Abstract: | The recent dramatic fall in oil prices has led to extensive capital rationing in international oil companies, and subsequent fierce competition between resource extraction countries to attract scarce investment. This situation is not adequately addressed by the large literature on international taxation and multinational companies, since it fails to take account of capital rationing in its assumption that companies sanction all projects with a positive net present value. The paper examines the effect of tax design on international capital allocation when companies ration capital. We analyse capital allocation and government take for four equal oil projects in three different fiscal regimes: the US GoM, UK upstream and Norway offshore. Implications for optimal tax design are discussed. |
| Keywords: | Taxation; international companies; project metrics; project valuation; oil projects |
| JEL: | F23 G12 G31 H21 H25 |
| Date: | 2017–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:stavef:2017_005&r=acc |
| By: | Antonio Aninat; Álvaro Bustos; Julio Riutort |
| Abstract: | In order to determine the market reaction to an announcement of a change in the audit firm, we carry on an event study between 2004 and 2013 that includes 130 publicly traded Chilean Companies. We find that the market reacted positively when a company announced that it will keep its audit firm that year. We rule out possible biases in the informational content of the event. This suggests that overall, the costs associated to a change of an audit firm (start-up cost and know how loss) would dominate the benefits of the same change (reduction in the probability of a value destroying event such as a fraud or an error). We discuss the implications of this result for the potential implementation of a rule of mandatory rotation in a developing country such as Chile. We also discuss the possibility of identifying the specific costs and benefits behind the audit firm change. |
| JEL: | M42 G34 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:470&r=acc |
| By: | Tatiana Didier; Ross Levine; Sergio L. Schmukler |
| Abstract: | How many and which firms issue equity and bonds in domestic and international markets, how do these firms grow relative to non-issuing firms, and how does firm performance vary along the firm size distribution (FSD)? To evaluate these questions, we construct a new dataset by matching data on firm-level capital raising activity with balance sheet data for 45,527 listed firms in 51 countries. Three main patterns emerge from the analysis. (1) Only a few large firms issue equity or bonds, and among them a small subset has raised a large proportion of the funds raised during the 1990s and 2000s. (2) Issuers grow faster than non-issuers in terms of assets, sales, and employment, i.e., firms do not simply use securities markets to adjust their financial accounts. (3) The FSD of issuers evolves differently from that of non-issuers, tightening among issuers and widening among non-issuers. JEL Classification: F65, G00, G10, G31, G32, L25 |
| Keywords: | access to finance, bond markets, capital market development, capital raisings, firm dynamics, firm financing, stock market |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201604&r=acc |