nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2020‒09‒21
six papers chosen by

  1. Royalty Taxation under Profit Shifting and Competition for FDI By Juranek, Steffen; Schindler, Dirk; Schneider, Andrea
  2. Alternative lenses for viewing how China has built its accounting and auditing profession By Macve, Richard
  3. Corporate Tax Avoidance and Industry Concentration By Julien Martin; Mathieu Parenti; Farid Toubal
  4. Empirische Ergebnisse zur IFRS 8-Segmentberichterstattung der DAX 30-Unternehmen für die Jahre 2009 bis 2019 By Binke, Fabian; Dahlhoff, Jürgen
  5. Auditors’ negligence and professional misconduct in India: a struggle for a consistent legal standard By Ram Mohan, M.P.; Raj, Vishakha
  6. X-Value adjustments: accounting versus economic management perspectives By Alberto Elices

  1. By: Juranek, Steffen (Dept. of Business and Management Science, Norwegian School of Economics); Schindler, Dirk (Erasmus School of Economics, Erasmus University Rotterdam); Schneider, Andrea (Jönköping International Business School)
    Abstract: Multinational corporations increasingly use royalty payments for intellectual property rights to shift profits globally. This threatens not only the tax base of countries worldwide, it also affects the nature of competition for foreign direct investment (FDI). Against this background, our theoretical analysis suggests a surprising solution to the problem of curbing profit shifting without suffering major FDI losses: A strictly positive withholding tax on royalty payments is both the Pareto-efficient solution under international coordination and the optimal unilateral response. If internal debt is sufficiently responsive, governments can even implement Paretooptimal targeting. Then, the royalty tax closes the profit-shifting channel, while all competition for FDI is relegated to internal-debt regulation. Our results question the ban of royalty taxes in double tax treaties and the EU Interest and Royalty Directive.
    Keywords: Source tax on royalties; foreign direct investment; multinationals; profit shifting; internal debt; EU Interest and Royalty Directive
    JEL: F23 H25 O23
    Date: 2020–09–09
  2. By: Macve, Richard
    Abstract: Purpose: The paper reviews some theoretical approaches that have been adopted for understanding the drivers and achievements of the Chinese professional project and the challenges it faces for the future, as a complement and a contrast to previous histories of China and to studies of other developing economies. Design/methodology/approach: Based mainly on evaluating the information as obtained from the interviews in mainland China, in Hong Kong and in London reported by Macve (2020), complemented by other published histories. Findings: China remains a paradox. Since the “reform and open” policy began in 1978 it has been transformed from one of the poorest countries to one of the economically most powerful in just some 40 years. However it remains (per capita) a “developing country”/”emerging economy” and ideologically a Communist country. While the accounting profession in the USA and UK has developed “from the bottom up” over more than a century and a half, the Chinese profession has effectively been created “from the top down” in under 25 years. The paper outlines alternative theorizations of the major stages in this achievement, in the context of the continuing rapid growth of China's economy and its stock markets, and of the overseas expansion of its manufacturing and increasingly service-oriented base. Research limitations/implications: Space has restricted the analysis here to a general overview. Application of Gramsci's hegemony theory is argued to be inappropriate in the context of understanding China's professional project. Instead, this study is framed within the neo-institutional theory of “linked ecologies” originally developed to examine “Western” developments and extended to the emergence of glocalization, while offering a comparison with related theorization of Russia's post-Communist development. Further theoretical development outside the Western neo-liberal context is called for. Originality/value: The paper demonstrates how accounting and auditing's development in this globally significant context has differed from that in other developing and transitional economies, reflecting in particular the proactive agency of the state. Given China's economic power, fuller understanding of the interrelated factors shaping its development is important for understanding the likely future shaping of the worldwide profession.
    Keywords: Chinese auditing profession; Chinese audit regulation; glocalization; hegemony; linked ecologies
    JEL: M40
    Date: 2020–07–06
  3. By: Julien Martin; Mathieu Parenti; Farid Toubal
    Abstract: This paper argues that tax avoidance by large corporations has contributed to the 25% increase in concentration among U.S. firms since the mid-1990s. Corporate tax avoidance gives large firms a competitive edge, which translates into larger market shares and an increase in the granularity of the economy. We develop IV and difference-in-differences strategies that show the causal impact of tax avoidance on firm-level sales. Had firms not resorted to tax avoidance in 2017, our results imply that the average industry concentration would have been 8.3% lower, which is around its early 2000 level.
    Keywords: tax avoidance, industry concentration, IRS audit probability
    JEL: D22 H26 L11 D40 F23
    Date: 2020
  4. By: Binke, Fabian; Dahlhoff, Jürgen
    Abstract: Kapitalmarktorientierte Unternehmen haben nach dem Rechnungslegungsstandard IFRS 8 finanzielle und sonstige Angaben zu ihren Segmenten zu machen. Damit ermöglichen sie externen Abschlussadressaten Einblicke in die Aktivitäten eines Unternehmens. Im Rahmen der vorliegenden empirischen Analyse wird untersucht, wie die Berichtspraxis der DAX 30-Unternehmen für die Jahre 2009 bis 2019 nach diesem Standard erfolgt ist. Es kann festgehalten werden, dass es relativ große Unterschiede im Umfang der veröffentlichten Angaben in der Segmentberichterstattung zwischen den Unternehmen gibt, was sicher der Bandbreite an unterschiedlichen Geschäftsmodellen und Branchen geschuldet ist. Dies weist auf die Flexibilität dieses Standards hin, der Unternehmen genügend Spielraum bei der Wahl, was sie für notwendig zu berichten erachten, lässt. Besonders gehäuft erfolgt eine Berichterstattung nach Produkten und Dienstleistungen (46% im Elfjahreszeitraum), sowie mit 4 oder 5 Segmenten (55% im Elfjahreszeitraum). Die relativ stabilen Mittelwerte bei verschiedenen Sachverhalten über den Zeitablauf von elf Jahren deuten auf eine große Konstanz in der Berichterstattung hin. Weitere Ausführungen in diesem Paper zeigen, dass der Standardsetter International Accounting Standards Board (IASB) in London keine Notwendigkeit sieht, diesen Standard zu verändern. Das zeigt die große Akzeptanz dieses Standards in Praxis und Wissenschaft. Weiterhin belegt ein Exkurs zu den Fehlerveröffentlichungen der Deutschen Prüfstellung für Rechnungslegung (DPR), dass noch nie ein DAX 30-Unternehmen einen Fehler zu IFRS 8 veröffentlichen musste. Das impliziert, dass die DAX-Unternehmen den Standard ausreichend gut beherrschen. Generell kann festgehalten werden, dass der IFRS 8 ein relativ ausgereifter Bilanzstandard ist, der externen Adressaten einen Einblick in die Teil-bereiche eines Unternehmens gewährt und einen Beitrag zum Abbau von Informationsasymmetrien zwischen Unternehmensführung und Stakeholdern leistet.
    Keywords: IFRS 8,Segmentberichterstattung
    JEL: M41
    Date: 2020
  5. By: Ram Mohan, M.P.; Raj, Vishakha
    Abstract: Gross negligence is a severe form of negligence. Its severity has been characterized using the presence of a mental element or mens rea accompanying the negligent act. Within the context of professional negligence, gross negligence is important as it constitutes professional misconduct. For auditors, a finding of professional misconduct through disciplinary proceedings can result in suspension or expulsion from the profession. The Securities and Exchange Board of India also uses this concept to determine whether an auditor has violated any securities regulations. Given the implications of a finding of gross negligence on the practice of an auditor, this paper seeks to examine the legal standard in detail. The paper examines all reported High Court decisions from 1950s till 2019 and finds that the standards applied by the High Courts have been inconsistent. In the absence of any precedent from the Supreme Court of India that details what comprises gross negligence in the context of auditors, the inconsistent approach of the High Courts poses a problem. The Supreme Court decision in the P.K. Mukherjee case (1968) dealt with an auditor’s misconduct, however, it did not examine the question of gross negligence. This paper offers a starting point for a discussion to minimize the uncertainty currently associated with auditors’ liability for professional misconduct, especially hoping to assist the newly established the National Financial Reporting Authority in its decision-making process.
    Date: 2020–09–14
  6. By: Alberto Elices
    Abstract: This paper provides a mathematical framework based on the principle of invariance to classify institutions in two paradigms according to the way in which credit, debit and funding adjustments are calculated: accounting and management perspectives. This conceptual classification helps to answer questions such as: In which paradigm each institution sits (point of situation)? Where is the market consensus and regulation pointing to (target point)? What are the implications, pros and cons of switching perspective to align with future consensus (design of a transition)? An improved solution of the principle of invariance equations is presented to calculate these metrics avoiding approximations and irrespective of the discounting curve used in Front Office systems. The perspective is changed by appropriate selection of inputs always using the same calculation engine. A description of balance sheet financing is presented along with the justification of the funding curves used for both perspectives.
    Date: 2020–09

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