nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2023‒01‒23
six papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Does IFRS information on tax loss carryforwards and negative performance improve predictions of earnings and cash flows? By Dreher, Sandra; Eichfelder, Sebastian; Noth, Felix
  2. Why choosing IFRS? Benefits of voluntary adoption by European private companies By Jérémie Bertrand; Hélène de Brebisson; Aurore Burietz
  3. Detecting Fraud in Development Aid By Jean Ensminger; Jetson Leder-Luis
  4. Differential corporate taxation and inter-asset investment distortions in South Africa By Mashekwa Maboshe; Matthew Stern; Yash Ramkolowan
  5. The perception of the impact of the adoption of IFRS on the quality of financial information by Moroccan financial actors: Modeling by structural equations By Adil LAOUANE; Mohamed Torra
  6. Firms' tax rate misperception: Measurement, drivers, and distortionary effects By Fochmann, Martin; Heinemann-Heile, Vanessa; Huber, Hans-Peter; Maiterth, Ralf; Sureth, Caren

  1. By: Dreher, Sandra; Eichfelder, Sebastian; Noth, Felix
    Abstract: We analyze the usefulness of accounting information on tax loss carryforwards and negative performance to predict earnings and cash flows. We use hand-collected information on tax loss carryforwards and the corresponding deferred taxes from the International Financial Reporting Standards tax footnotes for listed firms from Germany. Our out-of-sample tests show that considering accounting information on tax loss carryforwards does not enhance the accuracy of performance predictions and even worsens predictions. Besides, common forecasting approaches that deal with negative performance are prone to prediction errors. We provide a simple empirical specification to reduce forecast errors. We find evidence that more elaborate machine learning models (least absolute shrinkage and selection operator method) typically do not perform better or even worse than our simple specification in out-of-sample tests.
    Keywords: performance forecast, out-of-sample tests, deferred tax assets, tax loss carryforwards
    JEL: M40 M41 C53
    Date: 2022
  2. By: Jérémie Bertrand; Hélène de Brebisson; Aurore Burietz (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In 2005, International Financial Reporting Standards (IFRS) have been legally adopted by listed firms to facilitate the harmonization of accounting practices. However, IFRS remain an option for non-listed firms in some countries. We investigate whether European privately held firms can raise more debt when they voluntarily report their consolidated financial information according to IFRS rather than local accounting rules. Using fixed effects regressions on 8391 firms in 22 European Union (EU) countries from 2005–2018, we document that IFRS adoption leads to more private debt issue for non-listed firms. This accounting option could be particularly useful for opaque firms or firms located in common law countries. Our results contribute to the debate on European accounting policy for non-listed firms.
    Keywords: IFRS, Bank debt, Non-listed entities
    Date: 2021–03
  3. By: Jean Ensminger; Jetson Leder-Luis
    Abstract: When organizations have limited accountability, antifraud measures, including auditing, often face barriers due to institutional resistance and practical difficulties on the ground. This is especially true in development aid, where aid organizations face incentives to suppress information about misappropriated funds and may operate with limited transparency. We develop new statistical tests to uncover strategic data manipulation consistent with fraud. These tests help identify falsified expense reports and facilitate monitoring in difficult-to-audit circumstances, relying only on mandated reporting of data. While the digits of naturally occurring data follow the Benford’s Law distribution, humanly-produced data instead reflect behavioral biases and incentives to misreport. Our new tests improve upon existing Benford’s Law tests by being sensitive to the value of digits reported, which distinguishes between intent to defraud and error, and by improving statistical power to allow for finer partitioning of the data. We apply this method to a World Bank development project in Kenya. Our evidence is consistent with higher levels of fraud in harder to monitor sectors and in a Kenyan election year when graft also had political value. The results are validated by qualitative data and a forensic audit conducted by the World Bank. We produce simulations that demonstrate the superiority of our new tests to the standards in the field. Our tests are useful beyond development aid, including for monitoring corporate accounting and government expenditures.
    JEL: C49 D73 H83 M42 O22
    Date: 2022–12
  4. By: Mashekwa Maboshe; Matthew Stern; Yash Ramkolowan
    Abstract: South Africa has since the 1990’s actively reformed its corporate tax policy to stimulate investment in various assets and industries. While the investment impact of corporate taxation has been evaluated in various studies, no effort has been made to assess the potential inter-asset distortions due to differential taxation. Using a unique asset-industry level dataset, we […]
    Keywords: Africa, corporate taxation, fiscal policy, South Africa
    JEL: D22 F14 L25 O12 O32 O55
    Date: 2021–07–01
  5. By: Adil LAOUANE (UIT - Université Ibn Tofaïl); Mohamed Torra (UIT - Université Ibn Tofaïl)
    Abstract: The adoption of IFRS by the different payers has always been accompanied by the accentuation of the debate on the impact of such implementation on the quality of the financial information produced according to this new accounting framework. Therefore, it seemed appropriate to conduct our research by analyzing the perception of the main Moroccan financial actors on the impact of the adoption of IFRS on the quality of the annual accounts of the adopting listed companies. Therefore, we sent our questionnaire to a sample of 64 major players in the Moroccan financial market. In order to draw valid conclusions, we have based our methodological choices on the positivist paradigm, where the hypotheses of our problem are derived from theory. Following this logic, we have chosen a quantitative approach based on structural equations, and more precisely on the PLS method, which does not require a large number of observations and does not demand a normal distribution of the basic data. Therefore, our main results seem to indicate that the implementation of the IFRS standards has contributed positively to the improvement of the quality of financial communication. Moreover, Moroccan financial actors believe that the adoption of IFRS could significantly improve the financial performance of companies. Finally, the main users of financial information consider that the adoption of IFRS is of considerable interest to adopting companies listed in Casablanca.
    Abstract: L'adoption des normes IFRS par les différents payés a été toujours accompagnée par l'accentuation du débat qui porte sur l'impact d'une telle implémentation sur la qualité de l'information financière produite suivant ce nouveau référentiel comptable. De ce fait, Il nous a paru judicieux de mener notre recherche en analysant la perception des principaux acteurs financiers marocains quant à l'impact de l'adoption des normes IFRS sur la qualité des comptes annuels des entreprises cotées adoptives. De ce fait, nous avons adressé notre questionnaire à un échantillon composé de 64 acteurs majeurs dans le marché financier marocain. Pour tirer des conclusions valides, nous nous sommes basés sur des choix méthodologiques qui s'abritent sous le paradigme positiviste, où les hypothèses de notre problématique sont dégagées à partir de la théorie. Suivant cette logique, nous avons retenu une approche quantitative basée sur les équations structurelles, et plus précisément sur la méthode PLS qui n'exige pas un nombre important d'observations et ne demande pas une distribution normale des données de base. De ce fait, nos principaux résultats semblent indiquer que la mise en place des normes IFRS à contribuer positivement à l'amélioration de la qualité de la communication financière. De plus, les acteurs financiers marocains estiment que l'adoption des normes IFRS pourrait améliorer significativement la performance financière des entreprises. Et en dernier lieu, les principaux utilisateurs de l'information financière considèrent que l'adoption des normes IFRS porte un intérêt considérable pour les entreprises adoptives cotées à la place casablancaise.
    Keywords: Perception, IFRS, financial communication, financial performance, quality of information, normes IFRS, communication financière, performance financière, la qualité de l'information
    Date: 2022–11–30
  6. By: Fochmann, Martin; Heinemann-Heile, Vanessa; Huber, Hans-Peter; Maiterth, Ralf; Sureth, Caren
    Abstract: Decisions-makers in firms are expected to use perceived rather than actual tax rates and hence their decisions can be substantially biased by misperception. We quantify firms' misperception of their average tax rate (ATR) and marginal tax rate (MTR) and identify drivers of this tax rate misperception. Using survey data on German firms, we find that the share of firms considerably misperceiving their ATR and MTR exceeds 65% and 57% respectively. Further, we illustrate firms' impaired comprehension of the tax schedule reflected by the relation between ATR and MTR. We find sole proprietorships and partnerships on average considerably overestimate their ATR anchoring at the top marginal tax rate. While corporations show no uniform tax misperception patterns for retained profits, they tend to strongly underestimate ATRs and MTRs on distributed profits. Irrespective of the legal form, we find misperception is mainly driven by tax regime complexity, lack of tax knowledge and dissatisfaction with the tax system. Surprisingly, even though many firms report using the ATR instead of the appropriate MTR in their investment and financing decisions, which suggests that they underestimate their tax burden, this bias is partially attenuated by their ATR misperception. Overall, our findings demonstrate that policymakers and researchers can benefit from incorporating firms' tax rate misperception when estimating firms' tax response and evaluating tax policies.
    Keywords: Tax Misperception, Business Taxation, Survey, Tax Policy
    JEL: H25 H32 D91 M41
    Date: 2022

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