nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2022‒01‒10
eleven papers chosen by

  1. Does the “bomb crater” effect really exist? Evidence from the laboratory By Matthias Kasper; James Alm
  2. New Accounting Framework Faces Its First Test: CECL During the Pandemic By Bert Loudis; Sasha Pechenik; Ben Ranish; Cindy M. Vojtech; Helen Xu
  3. A Balance-Sheet Analysis of the Dutch Economy By Ms. Ruo Chen
  4. Pareto-Improving Minimum Corporate Taxation By Mr. Shafik Hebous; Mr. Michael Keen
  5. Cash on the Table? Imperfect Take-up of Tax Incentives and Firm Investment Behavior By Wei Cui; Jeffrey Hicks; Jing Xing
  6. Essays on capital markets research in accounting By Kapons, Martin
  7. How Specifications of the Reference Tax System Affect CBO’s Estimates of Tax Expenditures By Congressional Budget Office
  8. The taxation of capital gains: principles, practice, and directions for reform By Advani, Arun
  9. Before the “Inner Worldly Asceticism” : ecclesiastical accounting, government and economic rationality (13th-15th centuries) By Clément Lenoble
  10. The Fourth Accounting Directive and Member State Options for Single Accounts By Henselmann, Klaus
  11. Bank equity, interest payments, and credit creation under Basel III regulations By Li, Boyao

  1. By: Matthias Kasper (University of Vienna); James Alm (Tulane University)
    Abstract: This study uses a laboratory experiment to investigate two behavioral explanations for taxpayers’ tendency to reduce their compliance after an audit (the “bomb crater effect”): the tendency to make up for losses incurred in the past (loss repair), and the incorrect assumption that experiencing an audit decreases the risk of a future audit (misperception of risk). Our findings suggest that audits do not have a strong effect in the aggregate. However, behavioral responses depend on the audit outcome. While taxpayers who were found to report all income correctly are substantially less compliant in their subsequent tax declaration, taxpayers who were found to evade their entire income show the opposite response. These results suggest that audits do not induce a general tendency for loss repair or a general misperception of the risk of a subsequent audit. Moreover, when comparing these changes in reporting behavior to the behavior of taxpayers who did not experience an audit, we find that audits do in fact not induce strong behavioral responses in general, and they do not induce a “bomb crater effect” in particular. Rather, our findings suggest that taxpayers reporting compliance in the laboratory is volatile, even absent any audits. We conclude that experimental studies should use control groups of unaudited taxpayers to identify the causal effect of audits on post-audit tax compliance.
    Keywords: Tax compliance; Bomb crater effect; Laboratory experiments
    JEL: C9 H26 H83
    Date: 2021–12
  2. By: Bert Loudis; Sasha Pechenik; Ben Ranish; Cindy M. Vojtech; Helen Xu
    Abstract: On January 1, 2020, most large and mid-sized U.S. banks adopted Current Expected Credit Losses (CECL), a new accounting standard for estimating allowances. Allowance for credit losses is an estimate of the amount that a bank is unlikely to recover from a financial asset.
    Date: 2021–12–03
  3. By: Ms. Ruo Chen
    Abstract: The Dutch economy is characterized by substantial financial balance sheets in the private sector. Uncommonly large gross financial assets and liabilities are found in the financial sector, whereas households own significant net financial wealth. The large gross financial assets and liabilities reflect a dominant role of multinational corporations (MNCs). Despite their size, these financial positions have not brought significant financial stability risks to the country. On the other hand, Dutch households’ long balance sheets have been associated with depressed consumption and volatile real estate investment, which has probably exacerbated the cyclicality of the economy. The expected reform of the pension system is likely to change the way household balance sheets interact with private consumption.
    Keywords: balance sheet, financial accounts, multinational corporation, household, pension; net financial assets; gross financial assets; corporation leverage; way household balance sheets interact; cyclicality of the economy; Financial statements; Financial sector; Household consumption; Pension spending; Pensions; Global
    Date: 2021–10–22
  4. By: Mr. Shafik Hebous; Mr. Michael Keen
    Abstract: The recent international agreement on a minimum effective corporate tax rate marks a profound change in global tax arrangements. The appropriate level of that minimum, however, has been, and remains, extremely contentious. This paper explores the strategic responses to a minimum tax, which—the policy objective being to change the rules of tax competition game--—are critical for assessing the design and welfare impact of, and prospects for, this fundamental policy innovation. Analysis and calibration plausibly suggest sizable scope for minima that are Pareto-improving, benefiting low as well as high tax countries, over the uncoordinated equilibrium.
    Keywords: Tax Competition, Minimum Taxation, Corporate Tax Reform, International Taxation; competition game; policy objective; corporate tax reform; best response; country benefit; residence country; Corporate income tax; Competition; Tax avoidance; Global
    Date: 2021–10–22
  5. By: Wei Cui; Jeffrey Hicks; Jing Xing
    Abstract: We investigate whether investment incentives work in less developed countries by exploiting the introduction of accelerated depreciation (AD) for fixed asset investment in China as a natural experiment. In contrast to the large positive impact of similar tax incentives in the U.S. and U.K. found in recent studies, we document that AD was ineffective in stimulating Chinese firms' investment. Further, using confidential corporate tax returns from a large province, we find that firms fail to claim the AD benefit on over 80% of eligible investments. Firms’ take-up is significantly influenced by their taxable positions and tax sophistication. Moreover, resources of local tax authorities help improve awareness of the policy. Our study contributes to the understanding of conditions under which tax incentives for investment can be effective.
    Keywords: tax incentives, investment, take-up, tax administration
    JEL: H20 H30
    Date: 2021
  6. By: Kapons, Martin (Tilburg University, School of Economics and Management)
    Date: 2021
  7. By: Congressional Budget Office
    Abstract: To measure tax expenditures, the normal tax structure—the reference tax system—in which they represent special treatment must be defined. This report outlines how the reference tax system used by CBO affects its estimates of tax expenditures.
    JEL: H20
    Date: 2021–12–15
  8. By: Advani, Arun (University of Warwick, CAGE Research Centre, the Institute for Fiscal Studies, and the LSE International Inequalities Institute)
    Abstract: Capital gains are particularly complex to tax given their infrequency, the different ways in which they are generated, and worries about harming productivity. There are theoretical arguments in support of everything from zero rates to high rates of tax on capital. In this paper, I first discuss the impact of capital gains on inequality, which often motivates discussions about how gains should be taxed. I then set out the principles that determine how gains should be taxed, in particular how the tax rate should relate to income tax rates. I propose that capital gains tax rates be equalized with income tax rates, subject to provisions to allow gains to be ‘smoothed’ over time and to remove inflation from the tax base. I highlight key transitional issues in moving to such a tax structure. Finally, I discuss the specific lessons for Canada.
    Keywords: JEL Classification: R12, C18, C59
    Date: 2021
  9. By: Clément Lenoble (CIHAM - Histoire, Archéologie et Littératures des mondes chrétiens et musulmans médiévaux - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - EHESS - École des hautes études en sciences sociales - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - AU - Avignon Université - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The hypothesis put forward in this article is that accounting practices constituted a technique of asceticism and government within religious communities in the late Middle Ages, which inspired merchants to develop an ascetic conception of their own accounting practice and profession. This requires a fresh look at the reasons for the legitimacy and rationality that the use of registers and figures conferred on economic transactions and those who carried them out. To do this, we examine the registers of fifteen institutions in Provence and Italy, eight chapters of canons, a Cluniac priory and six convents of the mendicant orders, as well as manuals and writings of merchants. The different ways in which the accounting instrument is used and the uses to which it is put within the Church coincide with the different forms of religious life, economy of salvation and devotional practices offered by these institutions. The comparative analysis of the methods of auditing the accounts sheds light on the governmental and ascetic functions of accounting entries in Dominican and especially Franciscan convents, where the practices of rendering accounts are more regular and occupy a very important place in the government of communities and orders, as well as in the daily observance of the rule of poverty. These functions derive from a very long normative, theological and practical tradition dating back to the early days of Christianity and monasticism where material and divine accountability, obedience, fidelity and good administration have been assimilated to each other. A reading of the manuals and writings of merchants reveals that these conceptions were adopted by them. This allows us to appreciate in a new light the functions of the ciphering of commercial exchanges and the rationalities underlying these practices.
    Abstract: La hipótesis que se plantea en este artículo es que las prácticas contables constituían una técnica de ascetismo y gobierno dentro de las comunidades religiosas de la Baja Edad Media, lo que inspiró a los comerciantes a desarrollar una concepción ascética de su propia práctica y profesión contable. Ello exige una nueva mirada a las razones de la legitimidad y racionalidad que el uso de registros y cifras confería a las transacciones económicas y a quienes las realizaban. Para ello, examinamos los registros de quince instituciones de Provenza e Italia, ocho capítulos de canónigos, un priorato cluniacense y seis conventos de las órdenes mendicantes, así como manuales y escritos de comerciantes. Las diferentes formas de utilizar el instrumento contable y los usos que se le dan dentro de la Iglesia coinciden con las diferentes formas de vida religiosa, economía de la salvación y prácticas devocionales que ofrecen estas instituciones. El análisis comparativo de los métodos de auditoría de las cuentas arroja luz sobre las funciones gubernamentales y ascéticas de los asientos contables en los conventos dominicos y, sobre todo, franciscanos, donde las prácticas de rendición de cuentas son más regulares y ocupan un lugar muy importante en el gobierno de las comunidades y órdenes, así como en la observancia diaria de la regla de pobreza. Estas funciones se derivan de una larguísima tradición normativa, teológica y práctica que se remonta a los primeros tiempos del cristianismo y del monacato, donde se han asimilado la responsabilidad material y la divina, la obediencia, la fidelidad y la buena administración. La lectura de los manuales y escritos de los comerciantes revela que estas concepciones fueron adoptadas por ellos. Esto nos permite apreciar bajo una nueva luz las funciones de cifrado de los intercambios comerciales y las racionalidades que subyacen a estas prácticas.
    Abstract: L'hypothèse défendue dans cet article est que les pratiques comptables ont constitué une technique d'ascèse et de gouvernement au sein des communautés religieuses à la fin du Moyen Âge, ce qui a inspiré aux marchands une conception ascétique de leur propre pratique comptable et de leur profession. Cela suppose de s'interroger à nouveaux frais sur les raisons de la légitimité et de la rationalité que la mise en registre et le recours aux chiffres confèrent aux opérations économiques et à ceux qui les réalisent. Pour cela, nous nous penchons sur les registres de quinze institutions en Provence et en Italie, huit chapitres de chanoines, un prieuré clunisien et six couvents des ordres mendiants ainsi que sur des manuels et des écrits de marchands. Les différentes modalités de recours à l'instrument comptable et les usages qui en sont faits au sein de l'Église coïncident avec les différentes formes de vie religieuse, d'économie du salut et de pratiques dévotionnelles proposées par ces institutions. L'analyse comparée des méthodes de vérification des comptes éclaire les fonctions gouvernementales et ascétiques des écritures comptables dans les couvents dominicains et surtout franciscains où les pratiques de reddition des comptes sont plus régulières et occupent une place très importante dans le gouvernement des communautés et des ordres, ainsi que dans l'observance quotidienne de la règle de pauvreté. Ces fonctions dérivent d'une très longue tradition normative, théologique et pratique remontant aux premiers temps du christianisme et du monachisme où comptabilités matérielles et divines, obéissance, fidélité et bonne administration ont été assimilées les unes aux autres. La lecture des manuels et des écrits de marchands révèle que ces conceptions ont été adoptées par ces derniers. Cela permet d'apprécier sous un nouveau jour les fonctions de la mise en chiffre des échanges commerciaux et les rationalités qui sous-tendent ces pratiques.
    Keywords: Middle Ages,Christianity,Accounting,Asceticism,Merchant Economy,Economic Rationality,Moyen Âge,Chrétienté,Comptabilité,Ascétisme,Économie marchande,Rationalité économique
    Date: 2021
  10. By: Henselmann, Klaus
    Abstract: Die Rechnungslegung in Europa unterliegt einer gewissen Harmonisierung aufgrund von Richtlinien der Europäischen Union (ehemals Europäische Wirtschaftsgemeinschaft, Europäische Gemeinschaft). Richtlinien stellen kein unmittelbar geltendes Recht dar, sondern richten sich an die Mitgliedsstaaten und verpflichten diese, ihre nationalen Gesetze entsprechend anzupassen. Dabei enthalten die Richtlinien jedoch teilweise Mitgliedsstaaten-Wahlrechte, die es den Staaten erlauben zwischen mehreren Alternativen zu wählen. Ausgehend von der 4. Gesellschaftsrechtlichen Richtlinie vom 25. Juli 1978 über die Jahresabschlüsse von Kapitalgesellschaften werden die darin enthaltenen einzelnen Mitgliedsstaaten-Wahlrechte erfasst und kategorisiert. Um Ähnlichkeiten und Unterschiede in der Rechnungslegung der Mitgliedsstaaten zu erfassen, wird eine Messung in zwei Dimensionen vorgeschlagen: Auf der einen Skala zwischen einer mehr konservativen oder progressiven Bilanzierung (CP-Score), auf der anderen Skala zwischen einer eher restriktiven oder informativen Offenlegung (RI-Score). Die Betrachtung ändert sich über die Zeit. Einerseits wurden die europäischen Richtlinien zur Rechnungslegung (samt der enthaltenen Optionen) im Laufe der Jahre vielfach geändert, insbesondere ergänzt. Zudem konnte sich die Ausübung der verfügbaren Wahlrechte durch die Mitgliedsstaaten wandeln. Bei Abbildung der CP- und RI-Scores in einem Diagramm ergibt sich ein Pfad, welcher die Entwicklung der Rechnungslegung eines Mitgliedsstaates über die Jahre veranschaulicht.
    Keywords: Rechnungslegung,Europa,Richtlinie,Wahlrechte,Mitgliedsstaaten,konservativ,progressiv,informativ,restriktiv,Geschichte
    JEL: M41 N44
    Date: 2021
  11. By: Li, Boyao
    Abstract: Both equity and regulation play key roles in determining the ability of credit creation of banks. The equity endogenously varies while the regulations are exogenously imposed. I propose a banking model to investigate how the changes in bank equity due to interest receipt and expenditure affect credit and money creation under the Basel III regulations. Three Basel III regulations are discussed: the capital adequacy ratio, liquidity coverage ratio, and net stable funding ratio. The effects on credit creation are demonstrated by the changes in the credit supply in response to the interest payments changing the equity. My results indicate that the changes in equity cause multiplier effects on the credit supply. The multipliers depend on the regulatory constraints. Similarly, I present the impacts on money creation, given by the multiplier effects on the money supply. This study sheds considerable light on how bank equity and Basel III regulations affect credit and money creation.
    Keywords: Credit creation; Basel III; Bank equity; Interest payments; Multiplier effect; Balance sheet
    JEL: E51 G21 G28 G32
    Date: 2021–12–28

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