nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒05‒27
ten papers chosen by

  1. Accounting for Sustainable Finance: Does Fair value Accounting Fit for Long-term Investing in Equity? By Palea, Vera
  2. The Rise and Decline of Private Foundations as Controlling Owners of Swedish Listed Firms: The Role of Tax Incentives By Henrekson, Magnus; Johansson, Dan; Stenkula, Mikael
  3. Historical cost vs fair value in forest accounting: the case of Lithuania By Ramunė Budrionytė; Lionius Gaižauskas
  4. Simulating U.S. Business Cash Flow Taxation in a 17-Region Global Model By Seth G. Benzell; Laurence J. Kotlikoff; Guillermo Lagarda; Yifan Ye
  5. Republic of Madagascar; Technical Assistance Report—Report on Technical Assistance Mission in External Sector Statistics (July 2-13, 2018) By International Monetary Fund
  6. Small Business Use of the Integrated Tax Administration System in Nigeria By Efobi, Uchenna; Beecroft, Ibukun; Belmondo, Tanankem; Katan, Amelia
  7. Tax Audits as Scarecrows. Evidence from a Large-Scale Field Experiment By Bergolo, Marcelo; Ceni, Rodrigo; Cruces, Guillermo; Giaccobasso, Matias; Perez-Truglia, Ricardo
  8. Current Account and Credit Growth: The Role of Household Credit and Financial Depth By Ekinci, Mehmet Fatih; Omay, Tolga
  9. Stimulating long-term household investments in financial instruments By Danilov, Yuriy (Данилов, Юрий)

  1. By: Palea, Vera (University of Turin)
    Abstract: In the Action Plan on Sustainable Finance, the European Commission has called for a fitness check of fair value accounting for long-term equity investments, which are considered crucial for retooling the European economy toward sustainable development. Sustainable development is a founding value of the European Union as well as the objective of the Paris Agreement on climate change and the UN 2030 Agenda. This paper shows that there is good reason for the European Commission’s request, as fair value accounting can significantly contribute to asset reallocation away from equities. The paper provides a definition of “long-term equity investment” for accounting purposes and proposes a dual measurement system based on historical cost as a recognized amount on the balance sheet and fair value in the disclosure notes. Such a system would address the need to both reduce volatility in investors’ balance sheets and provide financial statement users with the information they need to properly assess management’s stewardship and the future net cash inflows to the entity. Under a dual measurement system, the objective of transparency in financial reporting would be balanced with that of maintaining financial stability and economic growth, which are core to sustainability. The paper concludes with policymaking recommendations.
    Date: 2019–05
  2. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Johansson, Dan (Örebro University School of Business); Stenkula, Mikael (Research Institute of Industrial Economics (IFN))
    Abstract: Private foundations became a vehicle for the corporate control of large listed firms in Sweden during the post-war era, but in the 1990s, they were replaced by wealthy individuals who either directly own controlling blocks or who own them through holding companies. We study potential explanations for this change and pro­pose two taxation-related candidates: shifts in the relative effective taxation across owner types and the dismantling of the inheritance taxation that prevented the genera­tional transfer of the ownership of large controlling blocks. Our analysis exploits newly computed marginal effective capital income tax rates across capital owners, accounting for all relevant factors, including rules governing tax exemptions. We show that the 1990–91 tax reform, abolition of the wealth tax for controlling owners in 1997, 2003 tax exemption of dividends and capital gains on listed stock for holding companies with a voting or equity share of at least 10 percent, and abolition of the inheritance and gift taxes in 2004 reversed the rules of the game. Recently, control has largely been wielded through direct ownership, and the role of foundations is rapidly declining. These find­ings point to the importance of tax incentives for the use of foundations as the control vehicles of listed firms.
    Keywords: Corporate governance; Entrepreneurship; Family firms; Foundations; Owner-level taxation
    JEL: H20 K34 L26 N44
    Date: 2019–05–20
  3. By: Ramunė Budrionytė (Vilnius University [Vilnius]); Lionius Gaižauskas (Vilnius University [Vilnius])
    Abstract: The accounting methods based on two concepts-accounting at historical cost and accounting at fair value-are responsible for the provision of information about the enterprise's assets in the financial statements. Taking into consideration the specifics of the national financial accounting regulation, the forests managed by the forestry enterprises can also be measured by using either of these two accounting methods. However, in terms of accounting, both of them pose certain problems or ambiguity. The purpose of the research is to evaluate the strengths and weaknesses of forest accounting methods based on fair value and historical cost and the practice of their use in Lithuanian forestry enterprises. The study examines scholarly literature and deploys the theoretical methods of comparative analysis, critical evaluation, systematisation, generalisation. The empirical research involved document content analysis, questionnaire survey. The article deals with the issues of the use of accounting methods for forestry accounting: traditional cost-based accounting methods do not reflect the biological forest transformation, hinders identifying the forest development costs and the end of their capitalisation, the method of a systematic derecognition. On the other hand, the essential complication of the use of the fair value method is that the forest largely lacks an active market with quoted prices. Thus, its fair value is determined on the basis of rather subjective assumptions by means of diverse valuation methods, resulting in unreliable and unverifiable information. The results of the research carried out into the forestry accounting policy observed in the Lithuania's private forestry enterprises revealed that forest accounting by cost is exclusively carried out by all the enterprises under investigation. Nevertheless, the method itself was interpreted quite differently. The article presents the modified forestry accounting methods by cost, which allow reducing the identified shortcomings.
    Keywords: forest (stands),accounting methods,fair value,historical cost
    Date: 2018–09–30
  4. By: Seth G. Benzell (Boston University and MIT Initiative on the Digital Economy); Laurence J. Kotlikoff (Boston University, The Gaidar Institute for Economic Policy, and NBER); Guillermo Lagarda (Boston University and Inter-American Development Bank); Yifan Ye (Boston University)
    Abstract: This paper uses the Global Gaidar Model to simulate replacing a territorial corporate income tax with a wealth tax imposed in the form of a destination-based Business Cash Flow Tax. According to the model, the reform produces, over a decade, increases in the capital stock, GDP, and pre-tax wages for high- and low-skilled workers of 20.5 percent, 6.8 percent, 6.3 and 7.5 percent, respectively. Young workers benefit greatly from the change, and welfare loss for retirees is limited. The initially revenue neutral tax reform raises enough additional revenue over time to permit a reduction in personal income tax rates.
    Keywords: Corporate Tax Reform, House Tax Plan, Economic Growth, Business Cash Flow Tax, Computable General Equilibrium, wealth taxation
    JEL: F43 H20 H60
    Date: 2018–11
  5. By: International Monetary Fund
    Abstract: A technical assistance (TA) mission visited Antananarivo, Madagascar, from July 2–13, 2018, to provide assistance in the external sector statistics (ESS), including the balance of payments and international investment position (IIP). The mission was conducted in the context of an initiative financed by the Financial Sector Stability Fund (FSSF) –Balance Sheet Approach (BSA) submodule, which involves intersectoral work for the production of more reliable BSA matrices to support macroprudential policy, analysis of the country’s financial stability, and International Monetary Fund (IMF) surveillance.
    Date: 2019–04–30
  6. By: Efobi, Uchenna; Beecroft, Ibukun; Belmondo, Tanankem; Katan, Amelia
    Abstract: Our research explores the factors that drive the ways in which small business owners perceive and use the Integrated Tax Administration System (ITAS) in Nigeria. We surveyed nearly 500 small businesses. We apply logistic regression analysis to the survey data to determine which among a range of factors – relating to the ownership of businesses, their internal organisation and their external environment – most affect their use of ITAS. The business ownership characteristics that have most influence are: the owner’s level of education, whether they received ITAS training and their trust in the tax administration process. The most significant internal firm characteristics are: the use of an external auditor, tax consultant or computerised accounting system. The most important factor in the external environment is the extent to which tax offices advertise the availability of ITAS. Our findings suggest that tax officers’ collaboration with external auditors and tax consultants, provision of ITAS training and targeted advertisements and education campaigns will increase the positive perception and use of ITAS.
    Keywords: Economic Development, Finance, Governance,
    Date: 2019
  7. By: Bergolo, Marcelo (IECON, Universidad de la República); Ceni, Rodrigo (IECON, Universidad de la República); Cruces, Guillermo (CEDLAS-UNLP); Giaccobasso, Matias (University of California, Los Angeles); Perez-Truglia, Ricardo (University of California, Los Angeles)
    Abstract: The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay's tax authority to address this question. We sent letters to 20,440 small- and medium-sized firms that collectively paid more than 200 million dollars in taxes per year. Our letters provided exogenous yet nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measured the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, based on administrative data. We find that providing information about audits had a significant effect on tax compliance but in a manner that was inconsistent with Allingham and Sandmo (1972). Our findings are consistent with an alternative model, risk-as-feelings, in which messages about audits generate fear and induce probability neglect. According to this model, audits may deter tax evasion in the same way that scarecrows frighten off birds.
    Keywords: tax, evasion, audits, penalties, frictions
    JEL: C93 H26 K34 K42 Z13
    Date: 2019–05
  8. By: Ekinci, Mehmet Fatih; Omay, Tolga
    Abstract: Understanding the impact of financial variables on the current account balance is one of the priorities of academic literature and policy makers. Evidence from a broad panel of countries shows that an increase in the credit growth causes a significant deterioration in the current account balance. We find that this result is driven by household credit. Furthermore, we show that total and household credit growth rates have a stronger negative effect on the current account balance for lower levels of financial depth. In other words, the demand boom associated with the credit expansion gets weaker for higher levels of financial depth. Thus, our findings are in line with the ``too much finance'' hypothesis which states that positive impact of financial development on economic growth vanishes as the level of financial depth increases. Our results suggest that targeted policy measures which curb the excessive household credit growth might be more effective to reduce the external imbalances particularly at the early stages of financial deepening.
    Keywords: Credit Growth, Current Account Balance, Global Imbalances and Panel Data
    JEL: C33 F3 F32
    Date: 2019–05–12
  9. By: Danilov, Yuriy (Данилов, Юрий) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The paper deals with the promotion of long-term household investments in financial instruments. The use of both financial (tax) and non-financial (primarily institutional) incentives is analyzed. The main results of the analysis of foreign experience of similar incentives, as well as the first results of the application of individual investment accounts in the Russian Federation are given. Proposals were formulated for applying tax incentives, expanding the scope of application of individual investment accounts, including for forming pension capital, and developing mechanisms for suppressing non-market risks that impede household investments in the financial market, among which special attention was paid to the compensation fund project.
    Date: 2019–04
  10. By: Gunawan, Andrew
    Abstract: This study aims to test empirically whether public share ownership is able to moderate the relationship between the financial performance proxy with profitability on the quality of information. The quality of IFR information is measured through the disclosure index compiled by Boubaker et al (2012). This index contains 100 items of website-based disclosure that are commonly used in measuring the quality of accounting-based reporting information. The sample of this study is a manufacturing company listed on the Indonesia Stock Exchange, where the data analysis techniques that will be used are moderated Regression Analysis with the help of Indirect macro created by Andrew F. Hayes (2015) in combination with SPSS 23. The results show that public shareholding is able to moderate the relationship between financial performance with the quality of IFR information.
    Keywords: Keywords: public share ownership, financial performance, profitability and quality of information
    JEL: G10 G14 G15
    Date: 2019–03–08

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