nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒10‒22
seven papers chosen by

  1. External Audit Arrangements at Central Banks By Atilla Arda; Martin Gororo; Joanna Grochalska; Mowele Mohlala
  2. Intertemporal income shifting around a large tax cut: The case of depreciations By Dobbins, Laura; Eichfelder, Sebastian; Hechtner, Frank; Hundsdoerfer, Jochen
  3. Increasing tax transparency: Investor reactions to the country-by-country reporting requirement for EU financial institutions By Dutt, Verena Katharina; Ludwig, Christopher Alexander; Nicolay, Katharina; Vay, Heiko; Voget, Johannes
  4. Effective Tax Rates on Different Corporate Investments By John Freebairn; ;
  5. International Taxation and Productivity Effects of M&As By Todtenhaupt, Maximilian; Voget, Johannes
  6. Creative Accounting and Municipal Mergers -A Theoretical and Empirical Approach- By Tsuyoshi Goto; Genki Yamamoto
  7. How Local Authorities Can Exploit the Potential for Effective Property Taxes: A Case Study of Harare By Nengeze, Munatswi

  1. By: Atilla Arda; Martin Gororo; Joanna Grochalska; Mowele Mohlala
    Abstract: This paper takes stock of external audit arrangements at central banks. Its focus is on the annual audit of central bank financial statements, as well as legal and institutional measures that support audit quality and independence. The paper outlines good practices in these areas and provides a summary of actual practices observed based on a review of audited financial statements and central bank legislation. While the audit frameworks for central banks differ depending on their legal and institutional circumstances, central banks’ external audits increasingly follow international standards. Most of them are audited by auditors with international affiliations and embrace modern governance structures that provide for audit oversight. However, the paper also notes that a sizeable number of central banks do not publish the audit results in a timely manner, which leaves room for improvement in transparency practices.
    Date: 2018–09–11
  2. By: Dobbins, Laura; Eichfelder, Sebastian; Hechtner, Frank; Hundsdoerfer, Jochen
    Abstract: A corporate tax rate cut provides an incentive for corporations to shift taxable income from years before the tax rate cut to post-reform years. Our study analyzes whether depreciations and write-offs are used to achieve intertemporal income shifting. Using a panel of German manufacturing firms, we test in a difference-in-differences setting whether firms reacted to the announced 2008 corporate tax rate cut of 10 percentage points by accumulating depreciation expenses in the pre-reform year. Our results suggest that depreciation expenses in 2007 are on average about 2.5% higher than in the other observation years. Our analysis also sheds light on heterogeneity in intertemporal income shifting across firms. We provide evidence for a weaker reaction of loss firms resulting from a lower tax incentive. By contrast, we find stronger intertemporal income shifting of large firms and especially firms with a relatively high share of new investments in the capital stock. While the first result is consistent with a higher cost-efficiency of tax planning of large firms, the second finding suggests that investments in the current year provide more discretion for (tax-induced) earnings management.
    Keywords: Tax planning,Intertemporal income shifting,Tax avoidance opportunity,Depreciations,Write-offs
    JEL: H25 M41
    Date: 2018
  3. By: Dutt, Verena Katharina; Ludwig, Christopher Alexander; Nicolay, Katharina; Vay, Heiko; Voget, Johannes
    Abstract: We employ an event study methodology to investigate the stock price reaction around the day of the political decision to include a country-by-country reporting obligation for EU financial institutions. We do not find significant abnormal returns for the banks affected. Sample splits according to the effective tax rate and the degree of B2C orientation do not reveal a more pronounced negative investor response for banks engaging more strongly in tax avoidance or being potentially more concerned about reputational risks, respectively. We conclude that the implementation of a CbCR requirement for EU financial institutions did not trigger a noticeable investor response. Contrary prior findings regarding other public tax disclosure obligations might be driven by the distinct motivation of the rules and the way the information is presented. We contend that capital market reactions to an upcoming increase in tax transparency are not generalizable to other industries and settings, but that consideration must be given to the context and the exact design of the rule.
    Keywords: Tax Avoidance,Profit Shifting,Country-by-Country Reporting,Financial Institutions,Market Reaction
    JEL: H25 H26 G21 G28 H25 H26 G21 G28
    Date: 2018
  4. By: John Freebairn (Department of Economics, The University of Melbourne); ;
    Abstract: An effective tax rate is measured by the difference between the pre-tax return earned by the company investor and the after-tax return received by the saver providing the funds. The personal income and foreign withholding taxes as well as the corporate income tax are considered. Under current taxation in Australia, effective tax rates vary between debt and equity, resident and nonresident savers, distributed and retained earnings, and across companies of different sizes. Corporate income tax reforms, including changes to the tax base and the tax rate, change the patterns of, as well as the magnitudes of, effective tax rates. By way of illustration, effects of a lower corporate tax rate and of accelerated depreciation on the pattern and magnitudes of effective tax rates are assessed.
    Date: 2018–05
  5. By: Todtenhaupt, Maximilian; Voget, Johannes
    Abstract: We investigate the effect of international differences in corporate taxation on the realization of productivity gains in M&A deals. We argue that tax differentials distort the efficient allocation of productive factors following an M&A and thus mitigate the resulting productivity improvement. Using firm-level data on inputs and outputs of production as well as on corporate M&As, we estimate that a 1 percentage point increase in the absolute tax differential between the locations of two merging firms reduces the subsequent total factor productivity gain by 4.5%. This effect is less pronounced when firms can use international profit shifting to attenuate effective differences in taxation. In a complementary analysis, we use an event study design and a fixed effects model to explore the timing of the response of productivity, as well as, labor and capital input to the tax rate differential after the merger separately for the acquirer and the target. We show that our findings are mainly driven by deals with targets residing in locations with a tax advantage with respect to the acquirer. In these transactions, tax differentials reduce the post-merger adjustment in the target firm and inhibit the full realization of productivity gains.
    Keywords: M&A,productivity,international taxation
    JEL: F23 G34 H25 D24
    Date: 2018
  6. By: Tsuyoshi Goto (Research Fellow of Japan Society for the Promotion of Science, PhD. Student, Graduate School of Economics, Osaka University); Genki Yamamoto (Master's Student, Graduate School of Economics, Osaka University)
    Abstract: This study investigates what causes governments to use creative accounting. It is difficult to grasp the mechanism of creative accounting and show its existence. This is because, although creative accounting is seemingly closely tied with increases in debt, whether creative accounting is a cause or result of the debt increase is ambiguous and finding the occurrence of creative accounting is not easy. However,by focusing on municipal mergers in Japan in the 2000s, we clarify that the incentive to increase debt causes the use of creative accounting and show the existence of creative accounting, theoretically and empirically. Our theoretical model shows that a government with a stronger incentive to increase debt rationally employs creative accounting more fiercely and that an improvement in fiscal transparency reduces both the use of creative accounting and the deficit amount. Corresponding to this finding,by using a difference-in-difference analysis and data on Japanese municipal mergers, we show that municipalities with a stronger incentive to increase debt tend to employ creative accounting.
    Keywords: Creative accounting, Municipal merger, Fiscal common pool problem, Regulation for borrowing
    JEL: H74 H81 H83
    Date: 2018–10
  7. By: Nengeze, Munatswi
    Abstract: This paper explores administrative challenges that developing countries face in property tax administration. It is internationally acknowledged that local authorities play a vital role in enhancing a country’s economic growth and provision of public goods. Their activities rely on revenue collection. It is therefore in the public interest and the interest of all governments to support their activities. The author identified that the main source of revenue for the City of Harare is property tax. Property tax has the potential to perform better given the boom in urban population. Despite the potential of property tax, it has not been able to generate more revenue because local authorities lack capacity and face a number of challenges. This paper argues that, in addition to solutions intended to resolve the usual technical and political difficulties associated with property taxation, it is crucial for Harare to improve systems for property taxation. There is a need to invest in information technology, including the use of digital technology, electronic billing and payment systems.
    Keywords: Governance,
    Date: 2018

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