nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2021‒03‒08
eight papers chosen by

  1. Impact of Accountant Resource on Quality of Accounting Information System: Evidence from Vietnamese Small and Medium Enterprises By , AISDL
  2. The long-run investment effect of taxation in OECD countries By Jakob B. Madsen; Antonio Minniti; Francesco Venturini
  3. Quantifying the OECD BEPS indicators: An update to BEPS Action 11 By Klein, Daniel; Ludwig, Christopher A.; Nicolay, Katharina; Spengel, Christoph
  4. Assessing profit shifting using Country-by-Country Reports: a non-linear response to tax rate differentials By Barbara Bratta; Vera Santomartino; Paolo Acciari
  5. Deep Learning application for fraud detection in financial statements By Craja, Patricia; Kim, Alisa; Lessmann, Stefan
  6. Location, location, location! Real effects from the mandated removal of pension expected return from operating income By Anantharaman, Divya; Chuk, Elizabeth; Kamath, Saipriya
  7. How does the evolution of R&D tax incentives schemes impact their effectiveness? Evidence from a meta-analysis By Blandinieres, Florence; Steinbrenner, Daniela
  8. Information about Fewer Audits Reduces Support for Economic Relief Programs By Haaland, Ingar; Olden, Andreas

  1. By: , AISDL
    Abstract: Improving the quality of accounting information systems through accountant resources is beneficial to the performance and sustainable development of SMEs. This study investigated the impact of accountant resources on the quality of accounting information systems in Vietnamese SMEs. Accounting information system quality was measured by a multidimensional scale including system quality, information quality, and usefulness. The study tested hypotheses using Path analysis of Structural Equation Model based on 434 respondents. The findings indicated a strong interaction between the components of the accounting information system quality under the effect of accountant resources. The results showed a positive direct effect of accountant resources on system quality and the path analysis results also revealed an influence of accountant resources on information quality and usefulness via mediating variables. The results highlighted the importance of accountant resources for the quality of accounting information systems. This study contributed theoretically to the non-financial indicator for measuring accounting information system quality.
    Date: 2020–03–30
  2. By: Jakob B. Madsen; Antonio Minniti; Francesco Venturini
    Abstract: The gradually changing nature of production and the move away from tangible investment towards intangible investment over the past century suggests that the effects of the tax structure on investment need to be reassessed. To address this issue, we establish an endogenous growth model in which investment in tangible assets, R&D and education are influenced by different types of taxes. We test the long-run implications of the model using annual data for 21 OECD countries over the period 1890-2015. We find that corporate taxes reduce investment in tangible assets and R&D. However, while personal income taxes reduce investment in tertiary education, they enhance the investment in R&D. Thus, a revenue-neutral switch from corporate to personal income taxes is growth enhancing.
    Keywords: taxation, innovation, Tangible and Intangible Capital, economic growth
    JEL: E10 E62 O38 O40
    Date: 2021–02
  3. By: Klein, Daniel; Ludwig, Christopher A.; Nicolay, Katharina; Spengel, Christoph
    Abstract: In its 2015 Final Report on 'Measuring and Monitoring BEPS, Action 11', the OECD introduced six indicators to quantify and evaluate base erosion and profit shifting (BEPS) activity over time. In this study, we revisit three selected indicators, provide a numerical update for recent periods using timely data and point out potential pitfalls when interpreting the indicator results. First, we transparently replicate Indicator 1, which intends to assess the disconnect between financial and real economic activities, and show a moderately decreasing trend of the indicator estimates. Second, replicating Indicator 4, which is based on a micro-data regression approach, we find that multinational firms have, on average, lower effective tax rates than domestic firms. We confirm this result using a state-of-the-art propensity score matching approach. Third, the replication of Indicator 5, which intends to capture profit shifting through intangibles, shows a stable trend of the annual indicator estimates that extends beyond the OECD's sample period. Yet, the simplistic design of all indicators comes at the price of making them vulnerable to a number of confounding factors and economic effects that go beyond profit shifting. Overall, we conclude that the proposed indicators in the Final Report on BEPS Action 11 provide only limited information on the extent of BEPS.
    Keywords: Tax,Tax policy,International Taxation,BEPS,OECD,Base Erosion and Profit Shifting,Business Taxation,Corporate Tax Regulations
    JEL: H20 H25 H26 L25
    Date: 2021
  4. By: Barbara Bratta (Ministry of Economy and Finance of Italy); Vera Santomartino (Ministry of Economy and Finance of Italy); Paolo Acciari (Ministry of Economy and Finance of Italy)
    Abstract: We analyze profit-shifting behavior of Multinational Enterprises (MNEs) using a novel and unique dataset composed of Country-by-Country Reports (CbCRs) for year 2017 compiled worldwide by all MNEs having at least a subsidiary in Italy. By accessing CbCRs we are able to estimate BEPS - base erosion and profit shifting - using a firm-level data with a better representativeness than commonly used dataset. In fact, many studies are based on available large financial accounts databases that under-represent specific subset of firms and locations such as activities carried out in investment hubs. We provide evidence of this under-representativeness in this work. Our paper, apart from providing an estimation of BEPS as a response to CIT rates by applying the standard linearity assumption, follows recent work into analysing the existence of nonlinear responses to taxation. We go beyond preceding work by exploring non-linearity in a dataset composed of MNEs of all nationalities - thus providing evidence of the existence of a strong non-linear response in a more diversified dataset - and by focussing on the non-linear response of profit shifting to tax rate differentials and not only to CIT rates. We find that profit allocation in a country is non-linearly dependant to the differences in tax rate with respect to the average CIT rate faced by the MNEs in the rest of the world. We further investigate non-linearity pointing out that quadratic estimation presents some issues in countries with high CIT rate. We therefore provide a higher degree, cubic, estimation as a solution to these caveats. We find that the effect of changes in CIT rate differential over profit allocation is statistically and economically significant when allowing for an inverse U shaped semi-elasticity. Finally, we estimate profit shifting and revenue losses. We find that in 2017 a total of � 887 billion of profits was shifted due to differences in tax rates with a global revenue loss of � 245 billion. The distribution of shifted profits is found to be highly concentrated in few countries and this result may have relevant policies implications, suggesting that international tax reforms aimed at guaranteeing a minimum level of taxation may be very effective in reducing the incentive for MNEs to locate profits in these jurisdictions only based on tax reasons, thus may be a very efficient way to reduce BEPS.
    Keywords: BEPS, Profit shifting, International taxation, corporate income tax, multinationals
    JEL: H25 H26 H32 F23
    Date: 2021–02
  5. By: Craja, Patricia; Kim, Alisa; Lessmann, Stefan
    Abstract: Financial statement fraud is an area of significant consternation for potential investors, auditing companies, and state regulators. Intelligent systems facilitate detecting financial statement fraud and assist the decision-making of relevant stakeholders. Previous research detected instances in which financial statements have been fraudulently misrepresented in managerial comments. The paper aims to investigate whether it is possible to develop an enhanced system for detecting financial fraud through the combination of information sourced from financial ratios and managerial comments within corporate annual reports. We employ a hierarchical attention network (HAN) with a long short-term memory (LSTM) encoder to extract text features from the Management Discussion and Analysis (MD&A) section of annual reports. The model is designed to offer two distinct features. First, it reflects the structured hierarchy of documents, which previous models were unable to capture. Second, the model embodies two different attention mechanisms at the word and sentence level, which allows content to be differentiated in terms of its importance in the process of constructing the document representation. As a result of its architecture, the model captures both content and context of managerial comments, which serve as supplementary predictors to financial ratios in the detection of fraudulent reporting. Additionally, the model provides interpretable indicators denoted as “red-flag” sentences, which assist stakeholders in their process of determining whether further investigation of a specific annual report is required. Empirical results demonstrate that textual features of MD&A sections extracted by HAN yield promising classification results and substantially reinforce financial ratios.
    Keywords: fraud detection,financial statements,deep learning,text analytics
    JEL: C00
    Date: 2020
  6. By: Anantharaman, Divya; Chuk, Elizabeth; Kamath, Saipriya
    Abstract: The accounting for defined-benefit (DB) pension expense in U.S. GAAP involves offsetting pension costs against an expected (rather than actual) return on pension assets. Pensions commentators argue that this expensing model tilts pension portfolios towards riskier assets – as sponsoring firms can benefit from assuming higher expected rates of return on riskier assets (which reduce pension expense and boost reported income), without bearing the cost of higher volatility in reported income. We examine a recent regulatory change in U.S. GAAP, which mandates the relocation of the expected return on pension assets from “above the line” of to “below the line” of operating income. Consistent with this change reducing the financial reporting incentives for risk-taking, we predict and find that a sample of U.S. firms subject to this mandate reduces risk-taking in pension assets following the change, relative to a control sample of Canadian firms not subject to the change. In cross-sectional tests, we find that the reduction in risk-taking is more pronounced in (1) firms where the financial reporting incentives for risk-taking were stronger in the pre-period, and in (2) firms where the regulatory change particularly reduced those benefits. Our findings imply that managers are willing to undertake real actions (i.e., invest in riskier assets) to report favorable operating income, and that these incentives are incremental to the incentives to report favorable net income. They also provide evidence that financial reporting incentives serve as a driver of pension asset allocation decisions.
    Keywords: accounting regulation; standard-setting; defined benefit pension; operating income; Accounting Standards Update No. 2017-07
    JEL: M40 M41
    Date: 2021–02–19
  7. By: Blandinieres, Florence; Steinbrenner, Daniela
    Abstract: A growing interest in R&D tax incentive policies has given rise to a large number of evaluations, which provide contrasting results about their effectiveness. Our meta- analysis aims to explain the heterogeneity found in the R&D tax incentive evaluations by the features of tax incentives. We document that on average R&D tax incentives stimulate R&D expenditures across two streams of empirical studies. However, this averaged effect is moderated by the underpinning features of tax incentives. Our samples evidence that the estimations linked to incremental bases and related to targeted rules towards SMEs drive the positive results found in the literature. Introducing a cap or a pre-approval process does not decrease the effectiveness of R&D tax incentives, allowing governments to monitor the indirect support needed to stimulate private R&D expenditures. Our results highlight the importance of setting up a clear and stable tax incentives framework. Sources of uncertainty regarding the timespan, the amount of the financial returns from tax claims but also the main criteria to apply are likely to decrease their effectiveness in the short run.
    Keywords: Meta-analysis,R&D tax incentives incentives
    JEL: O32 H25 O38
    Date: 2021
  8. By: Haaland, Ingar (Dept. of Economics, University of Bergen); Olden, Andreas (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: Using a probability-based sample of the Norwegian population, we test whether an informational treatment about fewer audits by the Norwegian Tax Administration during the peak of the COVID-19 crisis affects support for an economic relief program designed to save jobs and prevent bankruptcies. The information treatment significantly reduces support for the economic relief program. The underlying mechanisms are lower trust in the tax administration and more pessimism about its ability to detect misuse of the program.
    Keywords: Policy Preferences; Economic Relief Programs; Information; Audit Activities
    JEL: D83 H25 H26
    Date: 2021–02–05

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