nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2022‒06‒27
seven papers chosen by

  1. A history of corporate financial reporting in Britain By Macve, Richard
  2. Closing pandora's box: How to improve the common reporting standard By Khadjavi, Menusch; Vertelman, Marjolein
  3. Polytope Fraud Theory By Dongshuai Zhao; Zhongli Wang; Florian Schweizer-Gamborino; Didier Sornette
  4. Taxation, Information Acquisition, and Trade in Decentralized Markets: Theory and Test By Tri Vi Dang; Xiaoxi Liu; Florian Morath
  5. Settlement Balances Deconstructed By Parnell Chu; Grahame Johnson; Scott Kinnear; Karen McGuinness; Matthew McNeely
  6. Substitutability between Balance Sheet Reductions and Policy Rate Hikes: Some Illustrations and a Discussion By Edmund S. Crawley; Etienne Gagnon; James Hebden; James Trevino
  7. The Excess Profits during COVID-19 and Their Tax Revenue Potential By Evgeniya Dubinina; Javier Garcia-Bernardo; Petr Jansky

  1. By: Macve, Richard
    Abstract: A history of corporate financial reporting in Britain, by John Richard Edwards, New York and Abingdon, Oxon, Routledge, 2019, xxv + 380 pp., illus., £84.84 (hardback), ISBN: 9781138553187; £36.44 (e-book), ISBN: 9781315148441
    JEL: M40
    Date: 2020–11–12
  2. By: Khadjavi, Menusch; Vertelman, Marjolein
    Abstract: The 2021 pandora papers show that many wealthy individuals and even politicians use shell companies to hide their fortunes. In order to fight international personal tax evasion, the Common Reporting Standard (CRS) was implemented and it helped governments to collect USD 85 billion already. USD 182 billion are still missing from the government budget because of personal tax evasion. The individual implementation strategies of CRS compliant countries can endanger the effectiveness of the Automatic Exchange of Information (AEOI). Several loopholes are used to circumvent the CRS. There are amendments possible which increase the effectiveness by improving the implementation strategies and closing the loopholes. The enforcement of the CRS should become stricter by removing financial institutions' licenses to operate in cases of non-compliance. Beneficial ownership registers should increase transparency regarding investments and securities. Within the current momentum of international tax legislation, the CRS compliant countries may leverage the USA into signing the CRS as well. The USA could in turn demand a more effective CRS before signing it.
    Keywords: Common Reporting Standard (CRS),Automatic Exchange of Information (AEOI),global taxevasion,improvements,loopholes
    JEL: H20 H26
    Date: 2022
  3. By: Dongshuai Zhao (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC)); Zhongli Wang (Bielefeld University); Florian Schweizer-Gamborino (Price Waterhouse Coopers (PwC)); Didier Sornette (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute; Southern University of Science and Technology; Tokyo Institute of Technology)
    Abstract: Polytope Fraud Theory (PFT) extends the existing triangle and diamond theories of accounting fraud with ten abnormal financial practice alarms that a fraudulent firm might trigger. These warning signals are identified through evaluation of the shorting behavior of sophisticated activist short sellers, which are used to train several supervised machine-learning methods in detecting financial statement fraud using published accounting data. Our contributions include a systematic manual collection and labeling of companies that are shorted by professional activist short sellers. We also combine well-known asset pricing factors with accounting red flags in financial features selections. Using 80 percent of the data for training and the remaining 20 percent for out-of-sample test and performance assessment, we find that the best method is XGBoost, with a Recall of 79 percent and F1-score of 85 percent. Other methods have only slightly lower performance, demonstrating the robustness of our results. This shows that the sophisticated activist short sellers, from whom the algorithms are learning, have excellent accounting insights, tremendous forensic analytical knowledge, and sharp business acumen. Our feature importance analysis indicates that potential short-selling targets share many similar financial characteristics, such as bankruptcy or financial distress risk, clustering in some industries, inconsistency of profitability, high accrual, and unreasonable business operations. Our results imply the possible automation of advanced financial statement analysis, which can both improve auditing processes and effectively enhance investment performance. Finally, we propose the Unified Investor Protection Framework, summarizing and categorizing investor-protection related theories from the macro-level to the micro-level.
    Keywords: fraud risk assessment, financial fraud, fraud detection, machine learning
    JEL: C45 C53 M40 M41
    Date: 2022–05
  4. By: Tri Vi Dang; Xiaoxi Liu; Florian Morath
    Abstract: This paper shows that a transaction tax makes trades in decentralized markets more information sensitive and enlarges the range of information costs for which the equilibrium exhibits private information acquisition and endogenous adverse selection. A transaction tax reduces the probability of trade. The opposite implications hold for a tax on capital gains. The theoretical implications of a transaction tax are tested using a tax policy change in one segment of Singapore’s housing market. Using various proxies for information sensitivity, the triple difference-in-difference analysis shows that a higher transaction tax reduces turnover more strongly when trades are more information sensitive.
    Keywords: Bargaining, information acquisition, taxation, transaction tax, capital gains tax, tax incidence, decentralized markets, housing markets, policy experiment, information sensitivity
    JEL: C78 D82 D83 G18 H20
    Date: 2022–08
  5. By: Parnell Chu; Grahame Johnson; Scott Kinnear; Karen McGuinness; Matthew McNeely
    Abstract: Because of the COVID-19 pandemic, public interest in the Bank’s balance sheet and, more specifically, the size of settlement balances, has grown. This paper deconstructs the concept of settlement balances and provides some context on their history, current state and possible future evolution.
    Keywords: Central bank research; Coronavirus disease (COVID-19); Financial markets; Monetary policy implementation
    JEL: E E59 E6 G G01
    Date: 2022–06
  6. By: Edmund S. Crawley; Etienne Gagnon; James Hebden; James Trevino
    Abstract: This note explores the substitutability between policy rate hikes and reductions in the size of the Federal Reserve's balance sheet for the removal of policy accommodation. We do so using a version of the FRB/US model augmented to incorporate the effects of changes in the Federal Reserve's asset holdings on term premiums.
    Date: 2022–06–03
  7. By: Evgeniya Dubinina (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Javier Garcia-Bernardo (Department of Methodology and Statistics, Utrecht University, Utrecht, Netherlands); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The COVID-19 pandemic has affected most companies´ profits negatively, but other companies did exceptionally well, recording excess profits during the pandemic. In this paper we estimate the scale of these excess profits, their determinants, and the revenue potential of excess profits tax. To estimate excess profits, we develop a trend-adjusted average earnings methodology. We apply the methodology to the consolidated Orbis data to estimate that large multinational corporations (MNCs) with subsidiaries in the EU made excess profits of $447 billion in 2020 (41.7% of their total profits in 2020). We show that primary business activities is a key determinant of MNCs´ excess profits made during the COVID-19 pandemic. We show that manufacturing, information, and financial sectors are responsible for the majority of excess profits. With country-by-country reporting data we estimate the excess profits arising from each EU member state and find that EU member states could together raise $6 billion with an excess profits tax of 10%, an additional tax levied by governments on corporations’ excess profits. The research findings may be useful for policymakers in addressing the question of financing economic recovery from the COVID-19 pandemic.
    Keywords: excess profits; covid-19; multinational corporations; excess profits tax; european union
    JEL: H25 L11 L25
    Date: 2022–06

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.