nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒07‒08
nine papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Dynamic Effects of Tax Audits By Advani, Arun; Elming, William; Shaw, Jonathan
  2. Survey on Accounting for Goodwill By Yoshihiro TOKUGA; Toshitake MIYAUCHI; Tomoaki YAMASHITA
  3. Firm survival in new EU member states By Eduard Baumohl; Ichiro Iwasaki; Evžen Koèenda
  5. Capital Income Taxation and Aggregate Instability By Kevin X.D. Huang; Qinglai Meng; Jianpo Xue
  6. Incentivized Resume Rating: Eliciting Employer Preferences without Deception By Judd Kessler; Corinne Low; Colin D. Sullivan
  7. 財務報告頻度のリアル・エフェクト:四半期開示の政策評価 By 藤谷, 涼佑
  8. Financial reporting frequency and external finance: Evidence from a quasi-natural experiment in Japan By Fujitani, Ryosuke
  9. コーポレートガバナンス改革に伴う社外取締役の登用と帰結 By 河内山, 拓磨; 石田, 惣平; 甚内, 俊人

  1. By: Advani, Arun (University of Warwick ; the Institute for Fiscal Studies (IFS) ; the Tax Administration Research Center (TARC) ; and the Centre for Competitive Advantage in the Global Economy (CAGE)); Elming, William (IFS and TARC at the time of involvement in this work); Shaw, Jonathan (Financial Conduct Authority)
    Abstract: Understanding causes of and solutions to non-compliance is important for a tax authority. In this paper we study how and why audits affect reported tax in the years after audit – the dynamic effect – for individual income taxpayers. We exploit data from a random audit program covering more than 53,000 income tax self assessment returns in the UK, combined with data on the population of tax filers between 1999 and 2012. We first document that there is substantial non-compliance in this population. One in three filers underreports the tax owed. Third party information on an income source does not predict whether a taxpayer is non-compliant on that income source, though it does predict the extent of underreporting. Using the random nature of the audits, we provide evidence of dynamic effects. Audits raise reported tax liabilities for at least five years after audit, implying an additional yield 1.5 times the direct revenue raised from the audit. The magnitude of the impact falls over time, and this decline is faster for less autocorrelated income sources. Taking an event study approach, we further show that the change in reporting behaviour comes only from those found to have made errors in their tax report. Finally, using an extension of the Allingham-Sandmo (1972) model, we show that these results are best explained by audits providing the tax authority with information, which then constrains taxpayers’ ability to misreport.
    Keywords: tax audits ; tax revenue ; tax reporting decisions ; income tax ; self assessment ; HMRC
    JEL: D04 H26 H83
    Date: 2019
  2. By: Yoshihiro TOKUGA; Toshitake MIYAUCHI; Tomoaki YAMASHITA
    Abstract: This study aims to respond to the global controversy surrounding “whether impairment ought also to be performed in the regular amortization of(acquired) goodwill, or should only be treated with impairment without regular amortization” and to deepen our understanding of the views of users and preparers of financial statements. The study a questionnaire survey targeting companies that prepare financial statements and analysts that use financial statements. and thus comtributes to resolving the controversy. As pioneering efforts to investigate the awareness of preparers surrounding accounting for goodwill after an acquisition, prior investigations by the Japan Business Federation (JBF) and the Accounting Standards Board of Japan (ASBJ) targeted only a small number of companies. In addition, a survey was conducted by the ASBJ to investigate user awareness using direct interviews with a small number of analysts. Therefore, to deepen the understanding of preparer and user awareness, we conducted a survey that included additional questions and options not dealt with in the prior studies. Moreover, we expanded the survey targets to 1,379 companies of the JBF(264 effective responses: 19.1%), 1,339 listed companies not affiliated with the JBF (185 effective responses, 13.5%),and 673 analysts (130 effective responses: 19.3%). The results of this survey clarified several issues. First, with regards to whether “impairment only (non-amaortization)” or “regular amortization + impairment” is preferred, approximately 70% of preparers answered that “regular amortization + impairment” is more desirable. The same trend was confirmed even when the responses were split into “JBF members/non-members” and “manufacturing/non-manufacturing” subsamples. For usere, approximately 60% responded that “regular amortization + impairment” was preferable. Next, when asked about the reasons for their support for “impairment only(non-amortization)” or “regular amortization + impairment,” both preparers and users responded that “performing the appropriate impairment test eliminates the need for regular amortization” was the most powerful reason for the first option. For the second option, both preparers and users stated the most compelling reason was “to make it correspond to profit through an appropriate allocation period(investment recovery calculation).”However,users showed similar support for “consistency with accounting dor other depreciable assets.” In addition, this survey asks whether regulating the goodwill amortization period is appropriate, what a desirable amortization period would be, whether the “impairment only(non-amortized)/regular amortization + impairment” options are appropriate, other alternative methods of accounting for goodwill, the nature of goodwill as an asset, and the relationship between goodwill accounting and M&A decision making. Additionally, it asks users whether they add goodwill amortization expense back to revenue and if they deduct the value of goodwill from net assets analyzing securities.
    Keywords: goodwill, regular amortization, impairment, questinnaire, Keidanren, Analysts Association
    Date: 2019–06
  3. By: Eduard Baumohl (Národná banka Slovenska, Bratislava); Ichiro Iwasaki (Institute of Economic Research, Hitotsubashi University, Tokyo, Japan); Evžen Koèenda (Institute of Economic Studies, Charles University, Prague, Czech Republic)
    Abstract: We analyze firm survival determinants in four new European Union member states (the Czech Republic, Hungary, Poland, and Slovakia). We employ the Cox proportional hazards model on firm-level data for the period of 2006 to 2015. We show that in all four countries, less concentrated control of large shareholders, higher solvency, and more board directors are linked with the increased probability of firm survival. However, an excessive number of board directors has a detrimental effect. Firms with foreign owners and higher returns on their assets exhibit better survival chances. Conversely, across countries and industries, larger firms and those hiring international auditors have lower probabilities of survival. A number of specific determinants influence firm survival in different ways, emphasizing the importance of country and industry differences when studying firm survival. We also document that in an economic sense, determinants associated with the legal form, ownership structure and corporate governance show the most beneficial effects with respect to firm survival.
    Keywords: firm survival, new EU member states, survival and exit determinants, hazards model
    JEL: D22 G01 G33 G34 P34
  4. By: Rashmi Tripathi
    Abstract: Small and medium enterprises (SMEs) have made noteworthy participation towards industrial growth, manufacturing, export and employment creation particularly at the low-skill level. SMEs Employing close to 40% of India's workforce and contributing 45% to India's manufacturing output Although they employ 40% of India's workforce, they only contribute 17% to the Indian GDP., SMEs play a critical role in generating millions of jobs, especially at the low-skill level. The country's 1.3 million SMEs account for 40% of India's total exports. The movement to IFRS being the global benchmark in accounting standards in gaining momentum with about 100 countries already moving to IFRS as the standard (or at least have converged very close to IFRS). In EU, IFRS is mandatory since 2005. In 2007 China adopted IFRS within 1 year of announcing the changeover. The International Financial Reporting Standards (IFRS) for Small and Medium Scale enterprises is a adaptation and generalization of full international financing reporting standards aimed at meeting the needs of Small and Medium scale enterprises financing reporting and to simplify the financial reporting. The adoption of IFRS across the country is taking place rapidly to bring about accounting quality improvement through a single set of standards for financial reporting. The International Financial Reporting Standards (IFRS) was issued by International Accounting Standards Board (IASB). All major economies have established timelines to converge with, or adopt the IFRS. The adoption of the International Financial Reporting Standards surely will ensure uniformity, comparability and reliability of the financial reporting across the world. The intent of the study is to investigate features of adoption of IFRS and to address issue and challenges while adopting IFRS for small and medium scale enterprises in India and the context of IFRS in Indian Scenario. The paper also identifies benefits for small and medium scale enterprises through adoption of IFRS and to make comparison between India GAAP framework with IFRS for small and medium enterprises. Key Words: IFRS, Financial Statements, Accounting Principles, Small and Medium Enterprises, Financial Reporting Policy
    Date: 2018–12
  5. By: Kevin X.D. Huang (Vanderbilt University); Qinglai Meng (Oregon State University); Jianpo Xue (Renmin University of China)
    Abstract: This paper overturns the conventional wisdom that reliance on capital tax rate adjustment to ensure fiscal sustainability is immune to extrinsic uncertainty. The interaction of capital taxation and endogenous capital utilization generates fiscal increasing returns and factor share redistribution to induce sunspots expectations. Capital depreciation allowance debilitates this mechanism to preempt policy induced instability while achieving budget objective. Self-fulfilling fluctuations can occur in real-world economies, unless their depreciation allowances are sufficiently higher or income tax rates lower than the current levels. This adds a short-run motivation to the long-run approach to capital taxation and the supply-side view of fiscal policy reforms.
    Keywords: Capital income taxation, Depreciation allowance, Endogenous utilization, Fiscal increasing returns, Self-fulfilling prophecies
    JEL: E6 E3
    Date: 2019–03–27
  6. By: Judd Kessler (University of Pennsylvania); Corinne Low (Columbia University); Colin D. Sullivan (University of Pennsylvania)
    Abstract: We introduce a new experimental paradigm to evaluate employer preferences, called Incentivized Resume Rating (IRR). Employers evaluate resumes they know to be hypothetical in order to be matched with real job seekers, preserving incentives while avoiding the deception necessary in audit studies. We deploy IRR with employers recruiting college seniors from a prestigious school, randomizing human capital characteristics and demographics of hypothetical candidates. We measure both employer preferences for candidates and employer beliefs about the likelihood candidates will accept job offers, avoiding a typical confound in audit studies. We discuss the costs, benefits, and future applications of this new methodology.
    Keywords: preferences, human capital, employment
    JEL: J24 J60 C93
    Date: 2019–06
  7. By: 藤谷, 涼佑
    Abstract: 本稿は日本の四半期開示の導入を利用して、高頻度の財務報告には企業の投資行動を促進する効果があることを実証的に示す。非上場の公開企業をコントロール・グループと設定し、報告頻度が企業の投資行動に与える影響を識別する。Difference-in-difference分析の結果、報告頻度の増加によって投資が増加しており、この効果は過小投資やquiet lifeに陥る可能性が高い企業で強いことを発見した。, Investigating the initiation of quarterly financial reporting to Japanese listed firms, this study finds that more frequent financial reporting increases corporate investment. To isolate the effects of quarterly financial reporting, I use Japanese quasi-private firms as the control sample. My Difference-in-Difference approach shows the positive effects of the frequent reporting on corporate investment. This study also finds that the effects are stronger for firms with the incentives of under-investment.
    Keywords: 四半期開示, 財務報告の頻度, リアル・エフェクト, quiet life, ショートターミズム
    JEL: G31 G32 M41
    Date: 2019–06
  8. By: Fujitani, Ryosuke
    Abstract: Using a unique institutional background of Japan, this study first examines the effects of the increase in the reporting frequency on corporate financing. From Difference-in-Difference (DiD) analysis, I show that the increase in the reporting frequency increases external finance but not finance from bank. Next, I find that the positive effects of the increase in the reporting frequency are stronger in firms with a) financial constraints, b) ex-ante information asymmetry, and c) more external capital demand. I also find that the firms a) do not change the cash holding intensity, b) invest more, and c) payout more. Unlike prior literature, these findings suggest that the increase in the reporting frequency enhances firm activities.
    Keywords: financial reporting frequency, quarterly reporting, quasi-private firms, external finance, pecking order theory
    JEL: G31 G32 M41
    Date: 2019–06
  9. By: 河内山, 拓磨; 石田, 惣平; 甚内, 俊人
    Abstract: 本研究の目的は,コーポレートガバナンス改革に伴う社外取締役の急激な増加に注目し,その選任に関するインセンティブ構造ならびにその導入効果について検討することにある。本研究における発見事項によれば,(1)日本ではガバナンス改革に対応する形で社外取締役の登用が急速に進展したものの,そこでは当該企業の監査役経験者が社外取締役として就任する傾向にあること,(2)日本では社外取締役の導入に際して「情報獲得の困難さ」や「経営者の交渉力」が決定要因となり得る一方,ガバナンス改革に対応する形でこれを導入した企業においては明確なインセンティブ構造が観察されず,人材登用に係るコストが比較的に低いと考えられる監査役経験者や法律・会計専門家が選任される傾向にあること,(3)社外取締役と将来業績との間には顕著な関係性が観察されず,その導入効果は不明瞭であることが分かった。上記発見事項は,既存研究ならびに政策討議に対する貢献を持つと期待される。, We focus on rapid increases in outside directors followed by Japanese corporate governance reform in 2015 and examine firms’ selection of their new outside directors and its impact on future performance. Our analyses show that 1) firms that introduce outside directors for the first time to comply with rules/codes are likely to appoint the former outside auditor (Kansayaku) to outside directors, 2) board structure of such firms does not correlate with factors/incentives that prior studies have shown, and 3) board structure and the presence of outside directors do not relate to future performance. Overall, the findings imply that Japanese corporate governance reforms, at least in part, lead to “window dressing” of board composition and result in unnatural selection of outside directors.
    Date: 2019–06

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