nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒11‒18
three papers chosen by

  1. Recognition versus Disclosure and Audit Fees and Costs:Evidence from Pension Accounting in Japan By Masaki KUSANO; Yoshihiro SAKUMA
  2. Tax Treaties Worldwide: Estimating Elasticities and Revenue Foregone By Petr Jansky; Jan Laznicka
  3. Russian Federation; Fiscal Transparency Evaluation Update By International Monetary Fund

  1. By: Masaki KUSANO; Yoshihiro SAKUMA
    Abstract: Statement No. 26, Accounting Standard for Retirement Benefits, requires Japanese firms to recognize previously off-balance sheet pension liabilities on their balance sheets. We explore auditors’ responses to recognized versus disclosed pension liabilities in the Japanese audit market. We use a pre-Statement No. 26 versus post-Statement No. 26 setting to analyze the effects of disclosed versus recognized pension information on audit fees and costs. We show that disclosed pension liabilities are processed similarly to recognized previously off-balance sheet pension liabilities when audit fees are determined. However, we find that associations with audit costs differ between disclosed and recognized pension liabilities. We also find that audit costs’ differential relations with disclosed and recognized pension liabilities are particularly pronounced for firms with a large pension plan deficit. Overall, our results suggest that auditors scrutinize recognized amounts more closely than disclosed financial information, thereby increasing the reliability of accounting information.
    Keywords: Recognition versus Disclosure, Pension Accounting, Audit Fees, Audit Costs
    JEL: M41 M42 M48
    Date: 2019–11
  2. By: Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic); Jan Laznicka (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)
    Abstract: Much of the foreign direct investment worldwide is affected by one of more than 3000 bilateral tax treaties. There is an agreement that dividend and interest payments respond to these tax treaties’ provisions, but evidence is scarce as to the magnitude of this response. We aim to fill in this gap for as many countries as possible by estimating the elasticities of dividend and interest income with respect to withholding tax rates, and the associated revenue foregone, exploiting the best available cross-country datasets. We collect information on withholding tax rates from the International Bureau of Fiscal Documentation; this includes information on EU directives, which imply zero withholding rates among all the EU member states and Switzerland, in addition to standard bilateral tax treaties. We combine this detailed information on withholding tax rates with foreign direct investment data from the International Monetary Fund, which we use to approximate bilateral dividend and interest flows; this results in a large panel data set of around 65,000 annual country-pair observations. While also observing heterogeneity in elasticities across countries, we estimate dividend flows to be highly elastic in a cross-country regression: a 1% increase in the applicable withholding tax is associated with a 2.3% - 2.6% decrease in dividend flows. We apply the elasticities to estimate potential tax revenue foregone. We estimate the largest annual revenue foregone for the United States (2.3 - 2.9 billion USD) and Canada (1.4 - 3.2 billion USD), while the investor country behind the largest revenue foregone is the Netherlands (2.9 – 3.3 billion USD). We arrive at somewhat lower and less robust estimates for interest income. Although our headline revenue estimates are, as expected, lower than static estimates that do not reflect elasticities, we nevertheless show that the revenue foregone of tax treaties remain non-negligible for some countries.
    Keywords: foreign direct investment, multinational enterprise, tax treaty, double taxation agreement, elasticity, withholding tax
    JEL: F21 F23 H25 H26 H32
    Date: 2019–11
  3. By: International Monetary Fund
    Abstract: Russia was one of the first countries (and first G20 country) to volunteer to pilot the IMF’s new Fiscal Transparency Evaluation (FTE). The evaluation was conducted in October 2013 on the basis of a draft version of the IMF’s revised Fiscal Transparency Code released for consultation in July 2013. The evaluation report was finalized following comments from the authorities and internal reviews and published in May 2014. In light of feedback from consultation and experience from the pilot FTEs, the Fiscal Transparency Code (“the Code”) was further refined, approved by the IMF Executive Board, and published in June 2014.1 As part of the IMF Article IV surveillance mission in May 2019, Russia’s progress in improving fiscal transparency and responding the recommendations over the past five years was evaluated. This report provides a summary of the changes to Russia’s fiscal transparency practices since 2014 and makes recommendations for further improvements.
    Date: 2019–10–30

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