nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒12‒24
thirteen papers chosen by

  1. Factors Associated with Internal Audit Function Involvement with XBRL Implementation in Public Companies: An International Study By Mohammad Abdolmohammadi; Steven DeSimone; Tien Shih Hsieh; Zhihong Wang
  2. La convergence de la comptabilité de l’Etat avec les normes IPSAS. Le cas du Maroc By Ayachi, Ghoufrane
  3. Evidence-based policymaking: Promise, challenges and opportunities for accounting and financial markets research By Leuz, Christian
  4. Where has the money gone?: The case of Value Added Tax revenue performance in Indonesia By Iswahyudi, Heru
  5. The concept of tax gaps - Corporate Income Tax Gap Estimation Methodologies By FISCALIS Tax Gap Project Group
  6. On the economics of audit partner tenure and rotation: Evidence from PCAOB data By Gipper, Brandon; Hail, Luzi; Leuz, Christian
  7. Empirical Studies on Effect of Property Tax on Capital Investment (Japanese) By KOBAYASHI Yohei; SATO Motohiro; SUZUKI Masaaki
  8. Risk sensitivity and risk shifting in banking regulation By Hinterschweiger, Marc; Neumann, Tobias; Saporta, Victoria
  9. Capital gains taxation and funding for start-ups By Edwards, Alexander; Todtenhaupt, Maximilian
  10. Optimal Capital Taxation Revisited By Chari, V. V.; Nicolini, Juan Pablo; Teles, Pedro
  11. Personal Income Tax Progressivity: Trends and Implications By Claudia Gerber; Alexander D Klemm; Li Liu; Victor Mylonas
  12. The Relationship between Privatization and Corporate Taxation Policies By Liu, Yi; Matsumura, Toshihiro; Zeng, Chenhang
  13. External Balance Sheet Risks in Ireland By Galstyan, Vahagn; Herzberg, Valerie

  1. By: Mohammad Abdolmohammadi (Bentley University); Steven DeSimone (Department of Economics and Accounting, College of the Holy Cross); Tien Shih Hsieh (Charlton College of Business, University of Massachusetts Dartmouth); Zhihong Wang (Graduate School of Management, Clark University)
    Abstract: We examine the relationships of national legal system, company size, and corporate governance quality with internal audit function (IAF) involvement with eXtensible Business Reporting Language (XBRL) implementation in public companies. Our data source is The Institute of Internal Auditors' Global Internal Audit Common Body of Knowledge (CBOK) database, from which we extract responses from 692 chief audit executives (CAEs) for our investigation. We find evidence of differential effects of company size on IAF involvement with XBRL implementation, depending on the national legal system. In civil law countries, IAFs of small companies have significantly higher levels of XBRL involvement than do IAFs of large companies, whereas, in common law countries, IAFs of large companies have higher levels of involvement than do those of small companies. Finally, we find evidence that corporate governance quality is positively associated with IAF involvement with XBRL implementation.
    Keywords: Internal auditorsPublic companiesXBRL implementation, common law, civil law
    Date: 2017–12
  2. By: Ayachi, Ghoufrane
    Abstract: The State's accounting system must have an accrual accounting system in order to prepare financial statements that record changes in the heritage value, explain and reflect the way in which the state budget is managed both in revenue and expenditure and thus reflect the exact financial situation of the state at a given time. Once the accounting system of the State reflects the exact financial situation it can serve as a source of reliable and transparent financial information addressed, published and accessible to any interested person (citizen, politician, international financial institution ...). This article proposes to examine the impact of the adoption of IPSAS on Moroccan public finances.
    Keywords: Accrual Accounting, Public Finance, State Accounting, Public Sector, IPSAS.
    JEL: H60 H61 M40 M41
    Date: 2018–11–14
  3. By: Leuz, Christian
    Abstract: The use of evidence and economic analysis in policymaking is on the rise, and accounting standard setting and financial regulation are no exception. This article discusses the promise of evidence-based policymaking in accounting and financial markets as well as the challenges and opportunities for research supporting this endeavor. In principle, using sound theory and robust empirical evidence should lead to better policies and regulations. But despite its obvious appeal and substantial promise, evidence-based policymaking is easier demanded than done. It faces many challenges related to the difficulty of providing relevant causal evidence, lack of data, the reliability of published research, and the transmission of research findings. Overcoming these challenges requires substantial infrastructure investments for generating and disseminating relevant research. To illustrate this point, I draw parallels to the rise of evidence-based medicine. The article provides several concrete suggestions for the research process and the aggregation of research findings if scientific evidence is to inform policymaking. I discuss how policymakers can foster and support policy-relevant research, chiefly by providing and generating data. The article also points to potential pitfalls when research becomes increasingly policy-oriented.
    Keywords: evidence-based policymaking,cost-benefit analysis,regulation,standard setting,accounting,finance,capital markets,causal inferences,political economy
    JEL: A11 D61 D72 G18 G38 K22 L51 M48
    Date: 2018
  4. By: Iswahyudi, Heru
    Abstract: Since its introduction in 1983, Value Added Tax (VAT) has played an increasingly important role as one of the major sources of revenue for the Indonesian government. In the last two and a half decades, however, there is declining trend in its collection performance as a percentage of Gross Domestic Product. This study aims to explore the determinants of this declining trend in VAT revenue using macroeconomic data. These determinants are decomposed into three broad categories: tax expenditure policy, taxpayers’ noncompliance, and the share of aggregate consumption in the economy. It finds that the performance of VAT collection could mainly be explained by tax expenditure policies and the extent of noncompliance with tax laws. It is proposed that avenues of approach for reform could be directed toward reducing the scope of VAT exemptions, establishing a systematic approach in data collection and analysis to closely monitor trends and changes in taxpayers’ behavior, simplifying the tax system by setting a single rate that is imposed on a single type of consumption tax, and improving audit effectiveness by building trust between tax authority and taxpayers.
    Keywords: Indonesia, Value Added Tax, Tax Expenditure, Tax Revenue, Tax Noncompliance
    JEL: H2 H20 H25 H26 H6
    Date: 2018–11–06
  5. By: FISCALIS Tax Gap Project Group
    Abstract: The corporate income tax gap (CIT Gap) is the gap between corporate tax revenues as they “should be” collected and as they “are” collected. The gap is an indication of potential CIT revenue losses. This report defines the CIT gap as encompassing both non-deliberate actions by taxpayers (such as errors or omissions) and deliberate actions (such as fraud, evasion and avoidance) that lead to shortfall in revenues. This report reflects the objective of the Tax Gap Project Group (TGPG) to map and share expertise and good practices. The two main approaches to estimating the tax gap – the top-down and bottom-up methods – have both advantages and disadvantages. The choice of the estimation method depends heavily on the availability of data, resources and purposes of the estimate.
    Keywords: corporate taxation, tax gap, european union, tax avoidance
    JEL: H25 H26 H83
    Date: 2018–11
  6. By: Gipper, Brandon; Hail, Luzi; Leuz, Christian
    Abstract: We provide the first partner tenure and rotation analysis for a large cross-section of U.S. publicly listed firms over an extended period. We analyze the effects on audit quality as well as economic tradeoffs with respect to audit hours and fees. On average, we find no evidence for audit quality declines over the tenure cycle and, consistent with the former, little support for fresh-look benefits after five-year mandatory rotations. Nevertheless, partner rotations have significant economic consequences. We find increases in audit fees and decreases in audit hours over the tenure cycle, which differ by partner experience, client size, and competitiveness of the local audit market. Our findings are consistent with efforts by the audit firms to minimize disruptions and audit failures around mandatory rotations. We also analyze special circumstances, such as audit firm or audit team switches and early partner rotations. We show that these situations are more disruptive and more likely to exhibit audit quality effects. In particular, we find that lowquality audits give rise to early engagement partner rotations and in this sense have (career) consequences for partners.
    Keywords: Auditing,Audit fees,Audit quality,Auditor rotation,Audit partner tenure,Competition,PCAOB
    JEL: J01 J44 L84 M21 M42
    Date: 2018
  7. By: KOBAYASHI Yohei; SATO Motohiro; SUZUKI Masaaki
    Abstract: Property tax has been identified as a case of a "good" local tax in the literature. Such argument however presumes that property tax is levied solely on land. In practice, property tax applies to housing and depreciable assets such as machinery and buildings, which implies a feature of capital tax. It is known that capital tax distorts capital investment. The present paper analyzes the effects of property tax on capital investment. To be concrete, we use panel data of manufacture census such as Census of Manufacture and Economic Census for Business Activity, and examine how property tax on depreciable assets in Japan affects capital investments by small and medium enterprises. It is established that property tax negatively affects their investment and such adverse effects are exacerbated among enterprises with liquidity constraints.
    Date: 2018–11
  8. By: Hinterschweiger, Marc (Bank of England); Neumann, Tobias (Bank of England); Saporta, Victoria (Bank of England)
    Abstract: The financial crisis exposed enormous failures of risk management by financial institutions and of the authorities’ regulation and supervision of these institutions. Reforms introduced as part of Basel III have tackled some of the most important fault‐lines. As the focus now shifts toward the implementation and evaluation of these reforms, it will be essential to assess where the balance has been struck between the robustness and the risk sensitivity of the capital framework. This paper contributes to this assessment by stepping back from the details of the recent reforms and instead taking a bird’s eye view on the fundamental tradeoffs that may exist between robustness, complexity, and risk sensitivity. We review the history of risk sensitivity in capital standards and assess whether a higher degree of risk sensitivity necessarily leads to a better measurement of risk. We also provide evidence that the more risk‐sensitive Basel II framework may have reduced banks’ incentives to engage in higher‐risk mortgage lending in the UK. Our analysis suggests the need for a robust regulatory framework with several complementary standards interacting and reinforcing each other, even if, prima facie, subjecting banks to a number of regulatory constraints adds to complexity.
    Keywords: Basel 2; capital regulation; risk sensitivity; risk shifting
    JEL: G01 G18 G21 G28
    Date: 2018–07–04
  9. By: Edwards, Alexander; Todtenhaupt, Maximilian
    Abstract: We examine how capital gains taxes affect investment in start-up (i.e., pre-IPO) firms. Using data on capital raised by start-up firms in individual funding rounds, we estimate the effect of the SBJA of 2010, which implemented a full exemption from federal capital gains tax on the sale of qualified shares. Because of higher expected after-tax returns (lower future capital gains taxes), we hypothesize and find evidence consistent with this capital gains tax reduction increasing the amount of investment in start-up firms per funding round by about 12%. We also provide evidence that this effect is concentrated in start-up firms that are likely to be more financially sophisticated.
    Keywords: Capital Gains Taxes,Start-ups,Tax Capitalization
    JEL: M13 G24 H25
    Date: 2018
  10. By: Chari, V. V. (Federal Reserve Bank of Minneapolis); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis); Teles, Pedro (Banco de Portugal)
    Abstract: We revisit the question of how capital should be taxed. We allow for a rich set of tax instruments that consists of taxes widely used in practice, including consumption, dividend, capital, and labor income taxes. We restrict policies to respect promises that the government has made in the previous period regarding the current value of wealth. We show that capital should not be taxed if households have preferences that are standard in the macroeconomics literature. We show that Ramsey outcomes that must respect such promises are time consistent. We show that the presumption in the literature that capital should be taxed for some length of time arises because the tax system is restricted.
    Keywords: Capital income tax; Time consistency; Production efficiency
    JEL: E60 E61 E62
    Date: 2018–09–28
  11. By: Claudia Gerber; Alexander D Klemm; Li Liu; Victor Mylonas
    Abstract: This paper discusses how the structure of the tax system affects its progressivity. It suggests a measure of progressive capacity of tax systems, based on the Kakwani index, but independent of pre-tax income distributions. Using this and other progressivity measures, the paper (i) documents a decline in progressivity over the last decades and (ii) examines the relationship between progressivity and economic growth. Regressions do not reveal a significant impact of progressivity on growth, suggesting that efficiency costs of progressivity may be small—at least for degrees of progressivity observed in the sample.
    Keywords: Progressive taxation;Personal income taxes;Tax systems;Income inequality;Economic growth;Progressivity; Growth; Personal Income Tax; Tax Wedge; Inequality, Progressivity, Growth, Personal Income Tax, Tax Wedge, Inequality, Household
    Date: 2018–11–20
  12. By: Liu, Yi; Matsumura, Toshihiro; Zeng, Chenhang
    Abstract: This paper investigate how the corporate (profit) tax rate affects the optimal degree of privatization in a mixed duopoly, while introducing a minimum profit constraint for the private firm. Firstly, we show that the profit tax rate directly affects the behavior of the partially privatized firm and affects the behavior of the private firm through strategic interaction. In addition, we investigate the relationship between the optimal privatization policy and corporate tax policy, and find that the optimal degree of privatization increases with the corporate tax rate, regardless of whether the constraint is binding. The optimal degree of privatization decreases (increases) with the foreign ownership share in the private firm if the constraint is ineffective (effective). This result suggests that a minimum profit constraint can be crucial in the optimal privatization policy.
    Keywords: profit tax, minimum profit constraint, foreign ownership, optimal public ownership
    JEL: D43 H44 L33
    Date: 2018–08
  13. By: Galstyan, Vahagn (Central Bank of Ireland); Herzberg, Valerie (Central Bank of Ireland)
    Abstract: Large external imbalances have been a persistent feature of most advanced economies, including Ireland. This is despite significant deleveraging of the Irish banking sector since the financial crisis. Given the presence of internationally oriented activities with little Irelandrelated business, early-warning indicator metrics related to the international investment position require adjustments in order to serve as useful monitoring tools.We propose to focus on a metric related to the net external debt liabilities of a narrow set of domestic Irish banks: a closer monitoring of the external balance-sheet risk is warranted when the net external debt liabilities of domestic banks exceed 17 per cent of modified gross national income.
    Date: 2018–10

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