nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2022‒09‒05
eight papers chosen by

  1. Hybrid audit as an innovative approach in the audit practice of forestry By Georgieva, Daniela; Bankova, Diyana
  2. Ghosting the Tax Authority: Fake Firms and Tax Fraud By Paul Carrillo; Dave Donaldson; Dina Pomeranz; Monica Singhal
  3. Romania: Technical Assistance Report on Reforming Personal Income Taxation By International Monetary Fund
  4. Romania: Technical Assistance Report on Improving Revenues from the Recurrent Property Tax By International Monetary Fund
  5. Valuation of European firms during the Russia-Ukraine war By Bougias, Alexandros; Episcopos, Athanasios; Leledakis, George N.
  6. Firm net worth, external finance premia and monitoring cost - estimates based on firm-level data By Gregor Bäurle; Sarah M. Lein; Elizabeth Steiner
  7. Income Taxes, Gross Hourly Wages, and the Anatomy of Behavioral Responses: Evidence from a Danish Tax Reform By Kazuhiko Sumiya; Jesper Bagger
  8. Fear of Appreciation and Current Account Adjustment By Paul Bergin; Kyunghun Kim; Ju H. Pyun

  1. By: Georgieva, Daniela; Bankova, Diyana
    Abstract: Auditing has undergone many changes in the context of globalization and digitalization. Under the influence of the COVID-19 health crisis, additional restrictions are introduced, which are related to the impossibility of physical inspections (desk cheks or on-site ones). This has a significant effect on the activities of sectors and enterprises where on-site inspections are a priority, like in forestry. In order to answer the current challenges, the Forest StewardshipCouncil introduces a new audit approach, called "hybrid audit". The main goal of the study is to analyze the benefits and risks of hybrid audits in forestry. This will be done by (1) performing a comparative analysis with other types of audit (particularly financial and IT audit) and (2) deriving the characteristics and requirements of the hybrid audit. The study is conducted based on the scientific methods of analogy, analysis and synthesis, induction, deduction, and logical approach. The results of the study outlined the need for specific, local forestry-related rules and methodology of the procedures for the hybrid audit to be developed. Additionally, there is a risk of gaps in the check and verification of the forestry documentation and resources when using the hybrid audit
    Keywords: hybrid audit, forestry, management, risks, benefits
    JEL: M42 Q0
    Date: 2021–12
  2. By: Paul Carrillo; Dave Donaldson; Dina Pomeranz; Monica Singhal
    Abstract: An important but poorly understood form of firm tax evasion arises from the use of "ghost firms"—fake firms that issue fraudulent receipts so that their clients can claim false deductions. We provide a unique window into this global phenomenon using transaction-level tax data from Ecuador. Ghost transactions are widespread, prevalent among large firms and firms with high-income owners, and exhibit suspicious patterns in comparison to ordinary transactions: bunching at round numbers, at the end of the fiscal year, and just below financial system thresholds. We go on to study an innovative enforcement intervention that targeted ghost clients rather than ghosts themselves, which led to substantial tax recovery.
    JEL: H25 H26 H32
    Date: 2022–07
  3. By: International Monetary Fund
    Abstract: With one of the lowest revenues in the EU and a projected budget deficit exceeding 7 percent of GDP, Romania should rely on an array of tax (policy and administration) instruments to mobilize revenues. A fundamental question facing Romania’s reform efforts is how to spread the burden of the tax in an equitable manner, especially given the already relatively high income inequality. The fiscal system as a whole currently provides little income support at the bottom of the income distribution.
    Date: 2022–06–29
  4. By: International Monetary Fund
    Abstract: The current area-based property tax system in Romania is inefficient, producing revenue below its potential, while the taxable value determination is inequitable and complex. Indeed, the property tax only generated 0.6 percent of GDP in 2021 vs. the average of 1.8 percent of GDP in the OECD economies, or 0.9 percent of GDP in EU-27. Meanwhile, significant scope for improving both buoyancy and efficiency of the property tax system exists, not least through the elimination of multiple exemptions, addressing the current inadequate and fragmented self-declaration system of residential buildings that translates into incomplete fiscal cadasters.
    Keywords: property tax reform; real property; VALUE-BASED property tax; tax rate; property tax exemption; property tax system; property tax basis; Property tax; Land tax; Real estate prices; Asset valuation; Africa; Eastern Europe
    Date: 2022–06–29
  5. By: Bougias, Alexandros; Episcopos, Athanasios; Leledakis, George N.
    Abstract: We infer the asset value dynamics of European firms during the Russia-Ukraine war via the structural model of Merton (1974). Using high-frequency stock price data, we find that the war led to lower corporate security prices and higher asset volatility, eventually shifting asset values closer to the default region. On average, the balance sheet of European firms is expected to shrink by 2.05% and their 1-year default probability to increase from 0.32% to 2.12%. Regression analysis on asset and equity returns as well as default probability changes suggests that these effects are stronger for firms with large revenue exposure to Russia.
    Keywords: European firms; Merton model; Russia-Ukraine war; Asset returns; Default risk
    JEL: G12 G14 G32
    Date: 2022–07–16
  6. By: Gregor Bäurle; Sarah M. Lein; Elizabeth Steiner
    Abstract: Based on a large panel of balance sheets and income statements of Swiss nonfinancial firms from 1998 to 2016, we estimate the sensitivity of the cost of external finance to firm net worth using exogenous variation in net worth. We find that firm net worth is inversely related to the external finance premium, consistent with models featuring financial frictions as in Bernanke, Gertler, and Gilchrist (1999). Through the lens of their costly state verification setup, we provide a range for the monitoring cost implied by our estimated sensitivity of the cost of external finance to net worth. Our implied estimate of the monitoring cost ranges between 15 and 20 percent, consistent with an economically significant financial friction.
    Keywords: External finance premium, net worth, firm-level balance sheet data, costly state verification
    JEL: E32 E22 E44
    Date: 2022
  7. By: Kazuhiko Sumiya (Research Institute of Economy, Trade and Industry, RIETI); Jesper Bagger (Royal Holloway London)
    Abstract: This paper provides quasi-experimental evidence on the effects of income taxes on gross hourly wages by utilizing administrative data and a tax reform in Denmark. The reform introduced joint taxation to a middle tax bracket, bringing large changes to the tax system facing married couples. Using variation in spousal income for identification, we present non-parametric graphical evidence based on a difference-in-differences design among working married males. First, we find heterogeneous effects across income levels. For low-income workers, taxes have negative and dynamic effects on wages. Their elasticity of wages (with respect to net-of-marginal-tax rates) is close to one. For higher-income workers, the effects are small and static, with an elasticity of approximately 0.2. Second, wages respond to taxes through human capital accumulation and job changes. Finally, with smaller magnitudes than wages, daily hours worked also respond negatively to taxes, which contrasts with the prediction from a standard labor supply-and-demand model.
    Keywords: income taxation, administrative data, tax reforms, difference-in-differences, gross hourly wages, labor supply, human capital accumulation, job changes
    JEL: H22 H24 J22 J24 J30 J62
    Date: 2022–08–18
  8. By: Paul Bergin; Kyunghun Kim; Ju H. Pyun
    Abstract: This paper finds that limited exchange rate flexibility in the form of “fear of appreciation” significantly slows adjustment of current account imbalances, providing novel support for Friedman’s conjecture regarding exchange-rate flexibility. We present a new stylized fact: floaters have faster convergence than peggers for current account deficits, but not so for surpluses. A striking implication is that current account surpluses are more persistent than deficits on average. We provide evidence that this asymmetry is associated with a one-sided muting of exchange rate appreciations. We develop a multi-country DSGE model augmented with an asymmetric exchange rate policy to represent fear of appreciation; when solved to a third-order approximation, it can explain greater persistence of current account surpluses compared to deficits.
    JEL: F31 F33 F44
    Date: 2022–07

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