nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒09‒16
ten papers chosen by

  1. Profit-Sharing Rules and the Taxation of Multinational Internet Platforms By Francis Bloch; Gabrielle Demange
  2. Revisiting Intangible Capital and Labour Productivity Growth, 2000-2015: Accounting for the Crisis and Economic Recovery in the EU By Roth, Felix
  3. Foreign Direct Investment and Tax: OECD Gravity Modelling in a World with International Financial Institutions By Fabian J. Baier
  4. Whether States have Capacity to Sustain Projected Growth in GST Collection during the Compensation Period? By Mukherjee, Sacchidananda
  5. Determinants and Consequences of Internal Audit Functions within Colleges and Universities By Steven DeSimone; Kevin Rich
  6. Consumers as tax auditors By Naritomi, Joana
  7. Correlates of Internal Audit Function Maturity By Steven DeSimone; Giuseppe D’Onza; Gerrit Sarens
  8. Retailer Banks Information Technology Governance impact on customers statisfaction By Mohmed Mustafa
  9. Transparency, Accountability and Participation through Social Audit: Case of MGNREGA in Sikkim, India By Feba Varghese; N C Narayanan; S B Agnihotri; Girija Godbole
  10. Experimental Evidence on the Impact of Replacing the Incurred Credit Loss Model of Bank Loan Loss Provisions with the International or US Accounting Standards Boards’ Expected Credit Loss Models By Mohamed Gomaa; Kiridaran Kanagaretnam; Stuart Mestelman; Mohamed Shehata

  1. By: Francis Bloch; Gabrielle Demange
    Abstract: This paper analyzes taxation of an Internet platform attracting users from different jurisdictions. When corporate income tax rates are different in the two jurisdictions, the platform distorts prices and outputs in order to shift profit to the low-tax country. We analyze the comparative statics effects of an increase in the tax rate of one country. When cross-effects are present in both countries, the platform has an incentive to increase the number of users in the high-tax country and decrease the number of users in the low-tax country. When externalities only flow from one market to another, an increase in the corporate tax rate results either in a decrease or an increase in the number of users in both countries depending on the direction of externalities. We compare the baseline regime of separate accounting (SA) with a regime of formula apportionment (FA), where the tax bill is apportioned in proportion to the number of users in the two countries. Under FA, an increase in the corporate tax rate increases the number of users in the low-tax country and decreases the number of users in the high-tax country. We use a numerical simulation to show that the high-tax country prefers SA to FA whereas the low-tax country prefers FA to SA.
    Keywords: digital platforms, multinational firms, corporate income taxation, formula apportionment, separate accounting
    JEL: H32 H25 L12 L14
    Date: 2019
  2. By: Roth, Felix
    Abstract: This paper aims to revisit the relationship between intangible capital and labour productivity growth using the largest, up-to-date macro database (2000-2015) available to corroborate the econometric findings of earlier work and to generate novel econometric evidence by accounting for times of crisis (2008-2013) and economic recovery (2014-2015). To achieve these aims, this paper employs a cross-country growth accounting econometric estimation approach using the largest, up-to-date database available encompassing 16 EU countries over the time-period 2000- 2015. The paper accounts for times of crisis (2008-2013) and of economic recovery (2014-2015). It separately estimates the contribution of three distinct dimensions of intangible capital: i) computerized information, ii) innovative property and iii) economic competencies. First, when accounting for intangibles, the paper finds that these have become the dominant source of labour productivity growth in the EU, explaining 56 percent of growth. Second, when accounting for times of crisis (2008-2013), in contrast to tangible capital, the paper detects a solid positive relationship between intangibles and labour productivity growth. Third, when accounting for the economic recovery (2014-2015), the paper finds a highly significant and remarkably strong relationship between intangible capital and labour productivity growth. This paper corroborates the importance of intangibles for labour productivity growth and thereby underlines the necessity to incorporate intangibles into today's national accounting frameworks in order to correctly depict the levels of capital investment being made in European economies. These levels are significantly higher than is currently reflected in official statistics.
    Keywords: intangible capital,labour productivity growth,crisis,recovery,European Union
    JEL: C23 G01 O34 O47 O52
    Date: 2019
  3. By: Fabian J. Baier (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: In this paper, bilateral OECD FDI flow data from 1985 to 2017 is evaluated and compiled to create a new dataset in order to clarify the controversial role (in the literature) of corporate tax levels on the decisions of firms regarding whether or not, and where, to undertake investments. In the course of our research we find the need to control for interaction with international financial institutions: Membership in BIS, EBRD, ADB and MIGA. Quantitative analyses via gravity models firstly provide findings which are consistent with previous studies and, secondly, expand the knowledge about FDI and tax by providing new results relevant for policymakers in the context of globalization and international institutions. It is shown that falling corporate tax rate levels lead to increasing FDI inflows, the effect is, however, smaller than expected; if deviation from international cooperation is chosen as a national strategy (i.e. unilateralism), the tax rate, however, gains in importance. On the other hand, unilateralism triggers various effects decreasing FDI inflows, as trade openness is likely to decrease, the opportunity costs for other nations to deviate decrease, and therefore bilateral tax differences are likely to decrease as well; which will further reduce the effect of low tax levels. Evidence for the phenomenon of implementing low corporate tax levels in order to keep domestic firms within the country and reduce their incentives to invest abroad is not found.
    Keywords: Foreign Direct Investment, Corporate Taxation, International Financial Institutions, Gravity Equation, OECD Countries
    JEL: C32 E65 F21 F23 G20
    Date: 2019–08
  4. By: Mukherjee, Sacchidananda (National Institute of Public Finance and Policy)
    Abstract: Achieving harmonisation in design, structure and administration of taxes on goods and services was the major driving force behind the introduction of Goods and Services Tax (GST) in India. GST subsumes many taxes from both Union and State tax bases. Achieving tax harmonisation in a federal system curtails fiscal autonomy of both the Union and sub-national governments and therefore faces steep resistance. Revenue uncertainty associated with any tax reform is a major cause for concern for all governments and therefore the assurance of revenue protection given by the Union government to States helped to achieve broad consensus in favour of GST. On average State taxes subsumed under the GST used to contribute two-third of own tax revenue and finance one-third of total expenditure for general category States. Unlike the Union government, States have limited taxation power (tax handles) to generate additional revenue to cope up with any major revenue shortfall on account of GST collection. Therefore the revenue protection enshrined under the GST Compensation Act has played an important role behind introduction of GST in India. This has also helped the GST Council to experiment with design, structure and administration of GST during the GST compensation period (first five years of GST implementation) to moderate the impact of GST on Indian economy as well as facilitate ease of tax compliance. Given the ongoing shortfall in GST collection, many scholars believe that liberal GST revenue protection granted under the GST Compensation Act to states is unjustifiable. The GST compensation period will be over by June 2022 and thereafter GST collection of individual States is expected to depend on their tax capacity as well as tax effort. It is worthy to investigate whether states have tax capacity to sustain 14 percent growth rate in tax collection, as projected in the GST Compensation Act. The objective of this paper is to estimate tax capacity of the states with reference to major tax revenue subsumed under GST and see whether states could sustain 14 percent growth in their GST collection during the GST compensation period if they put adequate tax effort.
    Keywords: Sales Tax ; Value Added Tax (VAT) ; Goods and Services Tax (GST) ; Revenue Projection ; Stochastic Frontier Approach (SFA) ; Fiscal Autonomy.
    Date: 2019–07
  5. By: Steven DeSimone (Department of Economics and Accounting, College of the Holy Cross); Kevin Rich (Marquette University)
    Abstract: Using a combination of publicly available and hand-collected data, this paper uses a two-stage model to first examine what drives the presence and use of internal audit functions (IAFs) at U.S. colleges and universities, and then how IAFs influence financial reporting quality (reported material weaknesses in internal controls for financial statements and federal programs) and grant outcomes therein. Results indicate that institutions receiving public funding, those with larger enrollments and endowments, and those that maintain a hospital and audit committee are more likely to maintain an IAF. Findings also suggest that the presence of an IAF is negatively associated with reported material weaknesses for major programs at significant levels. Finally, the presence of an IAF is found to have a positive and significant association with federal grants received by the institution. The study’s findings provide the first quantitative insights on IAF work within U.S. colleges and universities. Results should be of interest to college/university leadership as they attempt to improve financial reporting quality and transparency, as well as grant outcomes.
    Keywords: Internal auditing, colleges and universities, financial reporting quality, material weaknesses, grants
    Date: 2019–07
  6. By: Naritomi, Joana
    Abstract: To investigate the enforcement value of third-party information on potentially collusive taxpayers, I study an anti-tax evasion program that rewards consumers for ensuring that firms report sales and estab-ishes a verification system to aid whistle-blowing consumers in São Paulo, Brazil (Nota Fiscal Paulista). Firms reported sales increased by at least 21 percent over 4 years. The results are consistent with fixed costs of concealing collusion, increased detection probability from whistle-blower threats, and with behavioral biases associated with lotteries amplifying the enforcement value of the program. Although firms increased reported expenses, tax revenue net of rewards increased by 9.3 percent.
    JEL: H25 H26 L25 O14 O17
    Date: 2019–09–01
  7. By: Steven DeSimone (Department of Economics and Accounting, College of the Holy Cross); Giuseppe D’Onza (University of Pisa); Gerrit Sarens (Louvain School of Management, Université Catholique de Louvain)
    Abstract: We identify several dimensions of the Internal Audit Function (IAF) as a composite measure of IAF maturity by using Principal Components Analysis (PCA) Our data is from the Common Body of Knowledge in Internal Auditing (CBOK) (2015) dataset. We find confirmation for our four hypotheses, where the support the IAF receives from the board, diversified training programs, the use of the IAF as a management training ground, and the maturity of the risk management system are significantly related to IAF maturity. Our hypotheses are verified both at a global and regional level. Regarding control variables, IAF age, CAE tenure, CAE certifications, and non-listed companies are also significant at a global level but not at regional level. We discuss implications of these findings for future practice and research.
    Keywords: Internal audit maturity, leading audit technology, risk management maturity
    Date: 2019–07
  8. By: Mohmed Mustafa (Ritsumeikan Asia Pacific University)
    Abstract: Information technology IT has become essential component in retailer banks business model, by heavily investing in information technology assets banks are able to offer numerous e-services via new innovative channels. This development makes it imperative to adapt standard IT management framework to insure high investment return and customers satisfaction. This paper examines the relation between retailer banks IT governance practices and banks customers satisfaction. For this purpose, questionnaires developed using COBIT5 IT governance framework as benchmark and sent to 4 retailer Banks IT managers. another questionnaire filled up by 350 this bank?s customers to assess their level of satisfaction. The results show that all banks understudy partially adapting Cobit5 framework process, it also indicates that some process such as services delivery and aligned planing and organization has higher impact on customers satisfaction level.
    Keywords: IT governance, Cobit 5,IT Audit , Customers satisfaction
    JEL: L86
    Date: 2019–06
  9. By: Feba Varghese (Centre for Technology Alternatives in Rural Areas); N C Narayanan (IIT Bombay); S B Agnihotri (IIT Bombay); Girija Godbole (IIT Bombay)
    Abstract: Transparency, accountability and participation (TAP) are some essential elements for ensuring democratic governance. Social audit is an operational instrument to reduce corruption by empowering people to scrutinize public expenses, detect corruption, and ensure accountability. Social audit is one of the robust element of MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) in India as they work through the Panchayat, and stimulate the public to participate with a sense of communal accountability. At the state level even five years after the issue of operational guidelines, we witness wide variations in the quality of social audits. Different states have adopted their own models and while some of them are successful, some of the states have still not set up and some are in the process of setting up an independent social audit unit. The Non-Governmental Organization (NGO) model of social audit in the state of Sikkim which is not widely discussed in literature is the focus of the study. This research attempts to study the efficacy of Social audit as a tool to bring Transparency, Accountability and Participation in MGNREGA taking the case of Sikkim.
    Keywords: Transparency, Accountability, Participation, Social Audit, MGNREGA, Development, Public Policy
    Date: 2019–07
  10. By: Mohamed Gomaa; Kiridaran Kanagaretnam; Stuart Mestelman; Mohamed Shehata
    Abstract: Our objective is to test-bed the new Expected Credit Loss (ECL) and Current Expected Credit Loss (CECL) models for bank credit loss accounting to identify the potential consequences of their implementation. In particular, whether and how ECL and CECL approaches could lead to divergence in credit loss accounting practices in the U.S. relative to the rest of the world is an unanswered question. To do this, we develop a stylized bank-loan setting in a controlled laboratory environment with eight different secured personal-loan portfolios. Fifty-six senior accounting students take the role of loan managers responsible for making annual loan-loss reserve decisions in a between-subjects design under the rules of either the ECL or CECL models. We examine the effects of mandating the ECL or CECL model in terms of their impacts on the adequacy of loan-loss reserves, the comparability and predictability of loan-loss reserves and the volatility of reported profit.
    Keywords: Credit-Loss Rule Changes; Test-bedding; Adequacy of Reserves; Excess of Reserves; Accounting Comparability; Accounting Predictability
    JEL: M48 C63 C91 M52
    Date: 2019–10

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