nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2020‒02‒03
ten papers chosen by

  1. Strategic interactions between tax and statutory auditors and different information regimes: Implications for tax audit efficiency By Blaufus, Kay; Schöndube, Jens Robert; Wielenberg, Stefan
  2. Impact of IFRS 9 on the cost of funding of banks in Europe By Fatouh, Mahmoud; Bock, Robert; Ouenniche, Jamal
  3. The EU Self-Surplus Puzzle: An Indication of VAT Fraud? By Martin T. Braml; Gabriel J. Felbermary; Martin Braml; Gabriel J. Felbermayr
  5. An Introduction to Audit Studies in the Social Sciences By Gaddis, S. Michael
  6. Taking on Board the Long-term Horizon in Financial and Accounting Literature By Samira Demaria; Sandra Rigot
  7. Do tax incentives reduce investment quality? By Eichfelder, Sebastian; Jacob, Martin; Schneider, Kerstin
  8. Financial constraints and intangible investments. Do innovative and non-innovative firms differ? By Sandro Montresor; Antonio Vezzani
  9. Banks' Credit Losses and Provisioning over the Business Cycle: Implications for IFRS 9 By Simona Malovana; Zaneta Tesarova
  10. Measuring the procyclicality of impairment accounting regimes: a comparison between IFRS 9 and US GAAP By Alejandro Buesa; Francisco Javier Población García; Javier Tarancón

  1. By: Blaufus, Kay; Schöndube, Jens Robert; Wielenberg, Stefan
    Abstract: We examine whether tax audit regimes become more efficient if (i) there are audited financial statements and (ii) tax auditors have access to the internal statutory audit report revealing information about statutory audit adjustments. Our analysis is based on a standard tax compliance game that we extend to model the strategic interaction among a firm issuing financial and tax reports, a statutory auditor, and a tax auditor. We find that the efficiency effects of additional information depend on the strength of tax auditor incentives and the weight that firms place on book income. For high-powered tax auditor incentives, we obtain no information effect on our efficiency measures. For low-powered tax auditor incentives, we find an ambiguous effect, and for mediumpowered tax auditor incentives and firms that place a high weight on book income, tax audit efficiency increases if the tax auditor has access to additional information. In the latter case, we find that granting the tax auditor access to the internal statutory audit report increases firms' tax compliance, raises tax revenues, and decreases tax audit frequency.
    Keywords: Tax compliance game,Tax audit,Statutory audit,Tax audit efficiency,Strategic auditing
    JEL: H26 M41 M42
    Date: 2020
  2. By: Fatouh, Mahmoud (Bank of England and University of Essex); Bock, Robert (University of Edinburgh); Ouenniche, Jamal (University of Edinburgh)
    Abstract: On implementation, IFRS 9 increases credit loss (impairment) charges and reduces after-tax profits of banks. This makes retained earnings and hence capital resources lower than what they would be under IAS 39. To maintain their capital ratios under IFRS 9, banks could elect to hold higher levels of equity capital. This paper uses a modified version of CAPM, which accounts for the low-risk anomaly (as suggested by Baker and Wurgler (2015)), to estimate the impact of this potential increase in capital levels on the cost of funding of banks in six European countries, the UK, Germany, France, Italy, Spain and Switzerland. We confirm the existence of low-risk anomaly for banks’ equity in the six countries, except France. The magnitude of the anomaly varies across countries, but is generally low relative to the long-run cost of equity for banks. Our results show that, on day 1, the implementation of IFRS 9 has minor impact on the cost of funding of banks in the six countries.
    Keywords: IFRS 9; low-risk anomaly; cost of funding; cost of equity; leverage; expected loss model; asset beta
    JEL: D92 G21 G28 G31 L51
    Date: 2020–01–16
  3. By: Martin T. Braml; Gabriel J. Felbermary; Martin Braml; Gabriel J. Felbermayr
    Abstract: The world runs a trade surplus with itself: the reported values of exports exceed the reported values of imports. This is a logically impossible but well-known empirical fact. Less well-known is the fact that, in recent years, more than 80 percent of the global surplus is a trade surplus that the EU has with itself. In this paper, we show that this EU self-surplus amounts to a striking 307 billion Euro in 2018. It persists in goods, services, and secondary income accounts. It also exists within the Euro Area, and is strongest between neighboring countries. Around the 2004 Eastern Enlargement, the EU self-surplus quadrupled. Balance of payments data from the United Kingdom appear highly distorted. We argue that these phenomena are not only due to measurement error. Rather, a large fraction of the EU’s self-surplus puzzle seems related to fraud in value added tax. The resulting loss in tax income could amount to as much as 64 billion Euro per year.
    Keywords: missing trade, VAT fraud, statistical discrepancies, current accounts
    JEL: F36 F32 F24 H26
    Date: 2019
  4. By: Paramita, Ratna
    Abstract: This study aimed to examine the effect of conservatism on equity valuation with corporate governance variable as moderating variable.The study was conducted on 365 manufacturing companies that meet the criteria of observations in 2011 to 2015. The variables used in this research is accounting consevatism as independent variables, corporate governance as moderating variable and equity valuation as dependen variable. The board of directors and manajerial ownership in this article as a proxy of corporate governance. Studies show conservatism affect the equity valuation. The higher the level of conservatism that increasingly reflects the reality of the financial statements and this would be a good response from investors. Board of commisioners and managerial ownership does not strengthen the influence of conservatism on equity valuation. Manejerial ownership in manufacturing companies does not affect the management to apply accounting conservatism.
    Date: 2018–01–16
  5. By: Gaddis, S. Michael (UCLA)
    Abstract: An audit study is a specific type of field experiment primarily used to test for discriminatory behavior when survey and interview questions induce social desirability bias. In this chapter, I first review the language and definitions related to audit studies and encourage adoption of a common language. I then discuss why researchers use the audit method as well as when researchers can and should use this method. Next, I give an overview of the history of audit studies, focusing on major developments and changes in the overall body of work. Finally, I discuss the limitations of correspondence audits and provide some thoughts on future directions.
    Date: 2018–01–01
  6. By: Samira Demaria (Université Côte d'Azur; GREDEG CNRS); Sandra Rigot (Université Paris Sorbonne Nord; CEPN)
    Abstract: This policy paper aims to determine the extent to which academic financial economics and accounting literature considers the long-term horizon. It will focus in particular on singling out the mostly frequently used designations and the issues addressed, as well as how these have changed over time. The paper is broken down into three parts: firstly an overview of academic research in the financial sphere followed by a summary of work in the accounting domain - both of which will consider the long-term challenges - and lastly an assessment of these themes and thoughts for future research.
    Date: 2020–01
  7. By: Eichfelder, Sebastian; Jacob, Martin; Schneider, Kerstin
    Abstract: This paper examines the effect of tax incentives in the form of bonus depreciation on the quality of investment. Using the expiration of tax incentives via bonus depreciation in East Germany and a representative panel of West German establishments, we show that bonus depreciation significantly lowers the quality of investment. The average quality of investments, measured by the responsiveness of future sales to current investment, reduces by 22.6-34.6%. This adverse effect of tax subsidies is greater for jurisdictions with higher tax rates as well as for large or high-productivity firms. Overall, while increasing investment quantity, as shown by prior literature, tax incentives such as bonus depreciation substantially reduce the quality of investments.
    Keywords: bonus depreciation,tax incentive,investment incentive,investment quality
    JEL: G11 H25 H32 M41
    Date: 2020
  8. By: Sandro Montresor (School of Advanced Studies, Gran Sasso Science Institute); Antonio Vezzani (Roma Tre University)
    Abstract: We investigate the extent to which financial constraints hamper the firms’ investment in intangibles. Drawing on the extant literature, we maintain that a distinction should be kept between innovators and non-innovators. Moreover, we argue that such a distinction should be investigated along the whole spectrum of intangibles firms invest and by addressing the risks of reverse causality and simultaneity bias in the relationship. Through an original quasi-panel extension of a recent European Innobarometer survey, we estimate two sets of recursive bivariate probit models – for innovative and non-innovative firms’ investments – from which interesting results emerge. Financial barriers hamper the investment of both kinds of firms only for R&D, design, and organisation and business processes. With respect to other intangibles, instead, financial barriers act only on innovators (or non-innovators) or are even absent. Furthermore, the hampering role of financial barriers distributes differently across different intangibles between innovators and non-innovators.
    Keywords: &D, intangibles, innovation, financial barriers.
    JEL: O30 O32 O33
    Date: 2019–12
  9. By: Simona Malovana; Zaneta Tesarova
    Abstract: We examine the procyclicality of banks' credit losses and provisions in the Czech Republic using pre-2018 data and then discuss the implications of the findings for provisioning in stage 3 under IFRS 9. This is possible because the majority of banks seem to have aligned their accounting definitions of default with the regulatory definition prior to the implementation of IFRS 9. We find significant asymmetries in banks' behavior over the cycle. Firstly, provisioning procyclicality is strongest in the later contractionary phase and early recovery phase, while it is non-existent in the early contractionary phase. Secondly, banks with higher credit risk behave more procyclically than their peers. If this behavior persists under IFRS 9, it may lead to delayed transfer of exposures between stages and exaggerate cyclical fluctuations.
    Keywords: Credit losses, IFRS 9, procyclicality, provisions
    JEL: C22 E32 G21
    Date: 2019–12
  10. By: Alejandro Buesa (Banco de España and Universidad Complutense de Madrid); Francisco Javier Población García (Banco de España); Javier Tarancón (Banco de España)
    Abstract: The purpose of this paper is to compare the cyclical behavior of various credit impairment accounting regimes, namely IAS 39, IFRS 9 and US GAAP. We model the impact of credit impairments on the Prot and Loss (P&L) account under all three regimes. Our results suggest that although IFRS 9 is less procyclical than the previous regulation (IAS 39), it is more procyclical than US GAAP because it merely requests to provision the expected loss of one year under Stage 1 (initial category). Instead, since US GAAP prescribes that lifetime expected losses are fully provisioned at inception, the amount of new loans originated is negatively correlated with realized losses. This leads to relatively higher (lower) provisions during the upswing (downswing) phase of the financial cycle. Nevertheless, the lower procyclicality of US GAAP seems to come at cost of a large increase in provisions.
    Keywords: banking system, provisions, regulation, cyclicality
    JEL: G21 G28 K20
    Date: 2020–01

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