nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2023‒11‒06
four papers chosen by

  1. Audit mandates, audit firms, and auditors By Breuer, Matthias; Le, Anthony; Vetter, Felix
  2. Current Expected Credit Losses (CECL) Standard and Banks' Information Production By Sehwa Kim; Seil Kim; Anya V. Kleymenova; Rongchen Li
  3. According to the Companies’ View, Which Policy Actions Would Increase the R&D Activities of Companies? By Ali-Yrkkö, Jyrki; Pajarinen, Mika
  4. Multidimensional tax compliance attitude By Bruns, Christoffer; Fochmann, Martin; Mohr, Peter N. C.; Torgler, Benno

  1. By: Breuer, Matthias; Le, Anthony; Vetter, Felix
    Abstract: Audits by private, third-party auditors are frequently mandated to ensure compliance with regulations (e.g., accounting or environmental standards). We examine how such mandates shape the market for audits. In our empirical examination, we focus on one of the oldest and most prominent audit markets, the market for audits of firms' financial accounting. Using novel data on firms, audit firms, and auditors-the key players in the market-, we find that audit mandates increase the number of audits, audit firms, and auditors, but decrease average auditor wages. These findings are consistent with mandates creating demand for low-quality audits, originating from involuntarily audited firms, in a market with differentiated audit qualities. In line with this interpretation, we find that the regulatory audit demand emanates from smaller firms with limited incentives to obtain audits voluntarily; and is served by smaller audit firms and less experienced auditors. Collectively, our findings suggest that the promise of audit mandates as a means to ensure regulatory compliance may be limited by the emergence of low-quality audits.
    Keywords: Auditing, Mandates, Employees, Wages, Quality, Market Structure
    JEL: G18 G38 J23 J24 J31 J42 K22 L10 L51 L84 M42 M48
    Date: 2023
  2. By: Sehwa Kim; Seil Kim; Anya V. Kleymenova; Rongchen Li
    Abstract: We examine whether the adoption of the current expected credit losses (CECL) model, which reflects forward-looking information in loan loss provisions (LLP), improves banks’ information production. Consistent with better information production, we find changes in CECL banks' financial reporting and operations. First, these banks' loan loss provisions become timelier and better reflect future local economic conditions. Second, CECL banks disclose longer, more forward-looking, and more quantitative LLP information. Lastly, they have fewer loan defaults after adopting CECL. These improvements are greater for banks that invest more in CECL-related information systems and human capital and even more salient for larger banks. Our findings suggest that banks' information production is improved under a more forward-looking accounting standard. However, these improvements are greater for banks with more resources to invest in related technology and human capital.
    Keywords: Current Expected Credit Losses (CECL); Banks; Information Production; Loan Loss Provisioning
    JEL: E32 G21 G28 M41 M48
    Date: 2023–09–29
  3. By: Ali-Yrkkö, Jyrki; Pajarinen, Mika
    Abstract: Abstract Several policy instruments can be used to increase research and product development (R&D). This brief focuses on companies’ views on the impact of these instruments based on a company survey. According to companies, the most influential instruments for increasing R&D of companies would be R&D tax incentives, increasing R&D grants and improving the availability of skilled labor. Corporate taxation was more important for domestic than for foreign companies. Instead, the costs of R&D employees were more important for foreign companies. When interpreting the results, it should take into account that they are based on companies’ subjective views.
    Keywords: R&D, Innovation, Globalization, Foreign ownership, Foreign company
    JEL: O31 O38
    Date: 2023–10–23
  4. By: Bruns, Christoffer; Fochmann, Martin; Mohr, Peter N. C.; Torgler, Benno
    Abstract: Citizen tax compliance significantly dictates governmental fiscal capacities. Recognizing this, understanding the determinants of tax compliance remains paramount. While existing literature frequently isolates and tests individual determinants such as audit likelihood, penalty structures, tax morale, and perceived fairness, an integrative, bottom-up approach addressing the spectrum of tax compliance attitudes has largely been overlooked. Addressing this gap, our study constructs a multidimensional Tax Compliance Attitude Inventory (TCAI) by harmonizing real taxpayer responses with established theoretical underpinnings. Through factor analysis, we delineate four pivotal factors: (i) morale, (ii) monetary benefit, (iii) deterrence, and (iv) authority. Notably, morale and deterrence emerge as consistent influencers of tax compliance. Embracing this multidimensionality, our cluster analysis demarcates two distinct taxpayer personas: (a) moralists and (b) rationalists. Our findings underscore that moralists consistently exhibit higher tax compliance than their rationalist counterparts. We further present a streamlined classification algorithm to operationalize the TCAI in new datasets, minimizing item count. This work serves as a seminal contribution, offering both academia and tax authorities a robust, quantitative tool to gauge tax compliance attitudes.
    Keywords: Behavioral economics, compliance attitudes, compliance behavior, tax evasion, heterogeneous individuals
    JEL: C38 C83 D91 H26
    Date: 2023

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