nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2017‒05‒21
three papers chosen by

  1. The information content of tax loss carryforwards: IAS 12 vs. valuation allowance By Flagmeier, Vanessa
  2. Tax policy: The fiscal revenue effects of international tax planning By Beznoska, Martin; Hentze, Tobias
  3. Multilateral Development Bank Credit Rating Methodology: Overcoming the Challenges in Assessing Relative Credit Risk in Highly Rated Institutions Based on Public Data By David Xiao Chen; Philippe Muller; Hawa Wagué

  1. By: Flagmeier, Vanessa
    Abstract: This is the first study that analyzes the predictive ability of deferred tax information under IFRS. I examine whether deferred taxes provide information about future tax payments and future performance, using a German sample of IFRS firms. The focus on tax loss carryforwards enables a separation of the two relations, testing on the one hand, the relation between recognized deferred tax assets and future tax payments and on the other hand, the relation between the non-usable part of tax losses and future earnings. I find significantly negative coefficients for both deferred tax items, indicating that higher recognized deferred tax assets are associated with lower future tax payments and higher non-usable tax loss carryforwards with lower future performance. Additionally, I compare the tax accounts' predictive ability for a matched German and US sample and find no significant differences between firms reporting under IFRS and US-GAAP. Taken together, the evidence suggests that deferred tax items for tax loss carryforwards reported under IFRS provide useful information about future outcomes and that this predictive ability does not differ significantly from firms reporting under US-GAAP.
    Keywords: deferred taxes,IAS 12,valuation allowance,tax loss carryforwards,tax footnote
    Date: 2017
  2. By: Beznoska, Martin; Hentze, Tobias
    Abstract: In the course of the 'Panama Papers' discussion, questions arise concerning the fiscal effects of international profit shifting and tax avoidance. A recent OECD study estimates the worldwide corporate tax losses to lie between 4 and 10 percent of the revenues. Applied to Germany, this would reflect between 3 and 7 billion Euro or maximum 1 percent of total tax revenues. However, the estimation underlies questionable assumptions and therefore severe uncertainties.
    Date: 2016
  3. By: David Xiao Chen; Philippe Muller; Hawa Wagué
    Abstract: The investment of foreign exchange reserves or other asset portfolios requires an assessment of the credit quality of counterparties. Traditionally, foreign exchange reserve managers and other investors have relied on credit rating agencies (CRAs) as the main source for credit assessments. The Financial Stability Board issued a set of principles in support of financial stability to reduce reliance on CRA ratings in standards, laws and regulations. To support efforts to end mechanistic reliance on CRA ratings and instead establish stronger internal credit assessment practices, this paper provides a detailed technical description of a methodology developed to assign an internal credit rating to multilateral development banks (MDBs), using only publicly available data. The methodology relies on fundamental credit analysis that produces a forward-looking assessment of the investment entity’s capacity and willingness to pay its financial obligations, resulting in an opinion on the relative credit standing or likelihood of default. This methodology proposes four key innovations: (i) a simple way of estimating the capital adequacy ratio, (ii) new metrics to evaluate the liquidity and funding profile of an MDB, (iii) a straightforward approach to evaluating the exceptional support from shareholders, and (iv) a new criterion related to corporate governance, which provides a high level of objectivity in assessing some of the qualitative indicators. The methodology is a key component of the joint Bank of Canada and Department of Finance Canada initiative to develop internal credit assessment capabilities and is currently used to assess eligibility and inform investment decisions in the management of Canada’s foreign exchange reserves.
    Keywords: Credit risk management, Foreign reserves management
    JEL: G24 G28 G32 F31
    Date: 2017

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.