Pub Date : 2020-02-23DOI: 10.1142/s1094406023500051
Charoula Daskalaki, Nikolaos I. Karampinis
The research problem We evaluated the effectiveness of statutory auditors as a tax inspection mechanism and examine a regulation change that occurred in Greece. In 2011, the Greek State passed a directive requiring that statutory auditors audit and certify the tax compliance of medium and large firms, and issue a Tax Compliance Report (TCR). Motivation The evidence on the auditors’ effect on tax avoidance is quite limited. Our research setting constitutes a unique quasi-natural experiment to evaluate auditors’ effectiveness and firms’ tax avoidance behavior under a new tax compliance regime. The test hypothesis We tested the following hypothesis: Tax avoidance was significantly reduced in the post-TCR period for firms subject to TCR. Target population Our target population consisted of firms that are subject to audits from statutory auditors for tax compliance purposes. Adopted methodology We employed a difference-in-differences design with Greek firms subject to TCR as the treated group and the rest of the Greek firms as the control group. We examined potential differences from the TCR enforcement for the two groups. Analysis Our main analysis presents results for the treated and the control groups regarding their non-conforming and conforming tax avoidance behavior in the pre- and the post-TCR period. Non-conforming refers to activities that reduce taxable income but leave book income unaffected, whereas conforming tax avoidance refers to activities that reduce both taxable income and book income. Additional analysis evaluates the effect of Big 4 audit firms, increased audit effort, and assignment of the TCR to the financial statements’ auditor. Findings Our empirical results suggest that non-conforming tax avoidance for treated firms (i.e., firms subject to tax audits) significantly decreased in the post-TCR period compared with that of the control sample (i.e., firms not subject to tax audits). Conversely, conforming tax avoidance increased. This evidence suggests that treated firms switched from non-conforming to conforming tax avoidance activities. Our results hold irrespective of the size of the audit firm that performed the TCR program, but we find that increased audit effort to accomplish the TCR program and the assignment of the TCR to the auditor who also audited the financial statements had an incremental impact on the reduction of non-conforming tax avoidance.
{"title":"Statutory Auditors and Tax Compliance: Evidence from a Quasi-Natural Experiment","authors":"Charoula Daskalaki, Nikolaos I. Karampinis","doi":"10.1142/s1094406023500051","DOIUrl":"https://doi.org/10.1142/s1094406023500051","url":null,"abstract":"The research problem We evaluated the effectiveness of statutory auditors as a tax inspection mechanism and examine a regulation change that occurred in Greece. In 2011, the Greek State passed a directive requiring that statutory auditors audit and certify the tax compliance of medium and large firms, and issue a Tax Compliance Report (TCR). Motivation The evidence on the auditors’ effect on tax avoidance is quite limited. Our research setting constitutes a unique quasi-natural experiment to evaluate auditors’ effectiveness and firms’ tax avoidance behavior under a new tax compliance regime. The test hypothesis We tested the following hypothesis: Tax avoidance was significantly reduced in the post-TCR period for firms subject to TCR. Target population Our target population consisted of firms that are subject to audits from statutory auditors for tax compliance purposes. Adopted methodology We employed a difference-in-differences design with Greek firms subject to TCR as the treated group and the rest of the Greek firms as the control group. We examined potential differences from the TCR enforcement for the two groups. Analysis Our main analysis presents results for the treated and the control groups regarding their non-conforming and conforming tax avoidance behavior in the pre- and the post-TCR period. Non-conforming refers to activities that reduce taxable income but leave book income unaffected, whereas conforming tax avoidance refers to activities that reduce both taxable income and book income. Additional analysis evaluates the effect of Big 4 audit firms, increased audit effort, and assignment of the TCR to the financial statements’ auditor. Findings Our empirical results suggest that non-conforming tax avoidance for treated firms (i.e., firms subject to tax audits) significantly decreased in the post-TCR period compared with that of the control sample (i.e., firms not subject to tax audits). Conversely, conforming tax avoidance increased. This evidence suggests that treated firms switched from non-conforming to conforming tax avoidance activities. Our results hold irrespective of the size of the audit firm that performed the TCR program, but we find that increased audit effort to accomplish the TCR program and the assignment of the TCR to the auditor who also audited the financial statements had an incremental impact on the reduction of non-conforming tax avoidance.","PeriodicalId":47122,"journal":{"name":"International Journal of Accounting","volume":"1 1","pages":""},"PeriodicalIF":2.0,"publicationDate":"2020-02-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42568605","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-12-12DOI: 10.1142/s1094406019500148
Mehul Raithatha, T. Shaw
We investigate whether family firms are motivated to adopt conservative accounting practices, given their unique characteristics of high promoter holdings, less diversified equity, and long-term interest in the business. We examine whether heterogeneity within family firms, captured through family members’ involvement in management and the firm’s affiliation to a business group, drives conservative behavior. We test our model on a sample of 2534 listed Indian firms from 2006 to 2015. Our results indicate that family-controlled firms are more conditionally conservative in their accounting practices, especially when family members manage them and when they are affiliated with a business group. These findings are robust to alternative measures of conservatism and also after controlling for omitted variable bias and reverse causality.
{"title":"Do Family Firms Choose Conservative Accounting Practices?","authors":"Mehul Raithatha, T. Shaw","doi":"10.1142/s1094406019500148","DOIUrl":"https://doi.org/10.1142/s1094406019500148","url":null,"abstract":"We investigate whether family firms are motivated to adopt conservative accounting practices, given their unique characteristics of high promoter holdings, less diversified equity, and long-term interest in the business. We examine whether heterogeneity within family firms, captured through family members’ involvement in management and the firm’s affiliation to a business group, drives conservative behavior. We test our model on a sample of 2534 listed Indian firms from 2006 to 2015. Our results indicate that family-controlled firms are more conditionally conservative in their accounting practices, especially when family members manage them and when they are affiliated with a business group. These findings are robust to alternative measures of conservatism and also after controlling for omitted variable bias and reverse causality.","PeriodicalId":47122,"journal":{"name":"International Journal of Accounting","volume":"54 1","pages":"1950014"},"PeriodicalIF":2.0,"publicationDate":"2019-12-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1142/s1094406019500148","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44188769","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-12-12DOI: 10.1142/S1094406019500173
Kevin Huu Phat Thai, J. Birt
This paper investigates the value relevance of risk disclosures relating to the use of financial instruments in the Australian metals and mining sector. The metals and mining sector is the largest sector in Australia by the number of companies and includes several of the world’s largest diversified resource producers. Using a manually constructed disclosure index based on AASB 7 Financial Instruments: Disclosures, we find that financial instrument-related risk disclosures provide useful information to equity investors. In terms of individual risk category, liquidity risk is shown to be the most informative risk disclosure. We contribute to a stream of the literature examining the informativeness of risk disclosures. The results of this study have implications for several stakeholders regarding the quality assessment of risk reporting. In addition, the findings are of interest to standard setters since further regulatory changes are under consideration to improve the presentation and disclosure of financial instruments.
{"title":"Do Risk Disclosures Relating to the Use of Financial Instruments Matter? Evidence from the Australian Metals and Mining Sector","authors":"Kevin Huu Phat Thai, J. Birt","doi":"10.1142/S1094406019500173","DOIUrl":"https://doi.org/10.1142/S1094406019500173","url":null,"abstract":"This paper investigates the value relevance of risk disclosures relating to the use of financial instruments in the Australian metals and mining sector. The metals and mining sector is the largest sector in Australia by the number of companies and includes several of the world’s largest diversified resource producers. Using a manually constructed disclosure index based on AASB 7 Financial Instruments: Disclosures, we find that financial instrument-related risk disclosures provide useful information to equity investors. In terms of individual risk category, liquidity risk is shown to be the most informative risk disclosure. We contribute to a stream of the literature examining the informativeness of risk disclosures. The results of this study have implications for several stakeholders regarding the quality assessment of risk reporting. In addition, the findings are of interest to standard setters since further regulatory changes are under consideration to improve the presentation and disclosure of financial instruments.","PeriodicalId":47122,"journal":{"name":"International Journal of Accounting","volume":"54 1","pages":"1950017"},"PeriodicalIF":2.0,"publicationDate":"2019-12-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1142/S1094406019500173","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"63987157","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-12-01DOI: 10.1142/s109440601950015x
Konstantina Michalopoulou
This study examines the impact of the first mandatory corporate governance regulation in the Greek environment on audit quality. Audit quality is operationalized with the number of audit qualifications, the monetary amount of audit qualifications, audit hours, and audit fees. It also utilizes the full content of the Greek audit report and constructs new audit quality proxies while it is the first that examines the association between corporate governance and actual audit hours. The findings suggest that following the implementation of the new regulation, auditors became more independent during the audit opinion process. Furthermore, the audit fee increases without audit hours showing a respective increase. It is concluded that the audit fee increase does not reflect differentiation in the delivered audit quality, as auditors do not exert more audit effort. The audit fee increase could reflect a risk premium due to the increase in auditors’ perceived business risk as a result of the increased spending and additional liability of listed companies under the new regulation.
{"title":"Mandatory Corporate Governance Rules and Auditor Behavior: The Case of Greece","authors":"Konstantina Michalopoulou","doi":"10.1142/s109440601950015x","DOIUrl":"https://doi.org/10.1142/s109440601950015x","url":null,"abstract":"This study examines the impact of the first mandatory corporate governance regulation in the Greek environment on audit quality. Audit quality is operationalized with the number of audit qualifications, the monetary amount of audit qualifications, audit hours, and audit fees. It also utilizes the full content of the Greek audit report and constructs new audit quality proxies while it is the first that examines the association between corporate governance and actual audit hours. The findings suggest that following the implementation of the new regulation, auditors became more independent during the audit opinion process. Furthermore, the audit fee increases without audit hours showing a respective increase. It is concluded that the audit fee increase does not reflect differentiation in the delivered audit quality, as auditors do not exert more audit effort. The audit fee increase could reflect a risk premium due to the increase in auditors’ perceived business risk as a result of the increased spending and additional liability of listed companies under the new regulation.","PeriodicalId":47122,"journal":{"name":"International Journal of Accounting","volume":"54 1","pages":"1950015"},"PeriodicalIF":2.0,"publicationDate":"2019-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1142/s109440601950015x","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44536436","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-12-01DOI: 10.1142/s1094406019990014
{"title":"Author Index Volume 54 (2019)","authors":"","doi":"10.1142/s1094406019990014","DOIUrl":"https://doi.org/10.1142/s1094406019990014","url":null,"abstract":"","PeriodicalId":47122,"journal":{"name":"International Journal of Accounting","volume":" ","pages":""},"PeriodicalIF":2.0,"publicationDate":"2019-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43648402","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-10-09DOI: 10.1142/s1094406019500136
P. Rosati, Fabian Gogolin, Theo Lynn
This study investigates the impact of cyber-security incidents on audit fees. Using a sample of 5,687 firms, we find that (i) breached firms are charged 12% higher audit fees, and (ii) firms operating in the same industry of a breached firm are charged 5% higher fees. Finally, using a difference-in-difference regression on a propensity score matched sample, we provide evidence suggesting that auditors do not revise their audit risk assessment following a breach. Overall, these results suggest that the increase in audit fees in the year of a breach is only temporary, and that auditors include cyber-security risk in their audit risk assessment even before an incident occurs. Higher cyber-security risk is ultimately reflected in higher audit fees paid by auditees.
{"title":"Audit Firm Assessments of Cyber-Security Risk: Evidence from Audit Fees and SEC Comment Letters","authors":"P. Rosati, Fabian Gogolin, Theo Lynn","doi":"10.1142/s1094406019500136","DOIUrl":"https://doi.org/10.1142/s1094406019500136","url":null,"abstract":"This study investigates the impact of cyber-security incidents on audit fees. Using a sample of 5,687 firms, we find that (i) breached firms are charged 12% higher audit fees, and (ii) firms operating in the same industry of a breached firm are charged 5% higher fees. Finally, using a difference-in-difference regression on a propensity score matched sample, we provide evidence suggesting that auditors do not revise their audit risk assessment following a breach. Overall, these results suggest that the increase in audit fees in the year of a breach is only temporary, and that auditors include cyber-security risk in their audit risk assessment even before an incident occurs. Higher cyber-security risk is ultimately reflected in higher audit fees paid by auditees.","PeriodicalId":47122,"journal":{"name":"International Journal of Accounting","volume":" ","pages":""},"PeriodicalIF":2.0,"publicationDate":"2019-10-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1142/s1094406019500136","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48121576","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-10-09DOI: 10.1142/s1094406019500112
C. Watrin, S Burggraef, F. Weiß
This paper investigates the associations of auditor-provided tax services (APTS) with tax planning and audit quality using a German sample. Our findings differ from those of previous U.S. studies, which we attribute to the fact that prior to 2015, the International Financial Reporting Standards (IFRS) did not contain a clear regulation similar to FIN 48, which requires firms to reserve for tax uncertainties. We find for our IFRS sample a negative association between APTS and tax avoidance, which suggests that auditors are aware that firms might not reserve for tax uncertainties and may advise more conservative tax strategies. Additionally, we find a positive relation between the level of APTS and the sustainability of tax strategies in client firms, consistent with this conservative approach. Furthermore, our results show that APTS are positively related to audit quality for our sample. This finding suggests that auditors, being aware of remaining tax uncertainties that are not reserved for, are more reluctant to accept earnings management, which would further increase the risk of restatement. Taken together, the results of our study suggest the importance of accounting standards regarding tax uncertainties for the implications of APTS.
{"title":"Auditor-Provided Tax Services and Accounting for Tax Uncertainty","authors":"C. Watrin, S Burggraef, F. Weiß","doi":"10.1142/s1094406019500112","DOIUrl":"https://doi.org/10.1142/s1094406019500112","url":null,"abstract":"This paper investigates the associations of auditor-provided tax services (APTS) with tax planning and audit quality using a German sample. Our findings differ from those of previous U.S. studies, which we attribute to the fact that prior to 2015, the International Financial Reporting Standards (IFRS) did not contain a clear regulation similar to FIN 48, which requires firms to reserve for tax uncertainties. We find for our IFRS sample a negative association between APTS and tax avoidance, which suggests that auditors are aware that firms might not reserve for tax uncertainties and may advise more conservative tax strategies. Additionally, we find a positive relation between the level of APTS and the sustainability of tax strategies in client firms, consistent with this conservative approach. Furthermore, our results show that APTS are positively related to audit quality for our sample. This finding suggests that auditors, being aware of remaining tax uncertainties that are not reserved for, are more reluctant to accept earnings management, which would further increase the risk of restatement. Taken together, the results of our study suggest the importance of accounting standards regarding tax uncertainties for the implications of APTS.","PeriodicalId":47122,"journal":{"name":"International Journal of Accounting","volume":" ","pages":""},"PeriodicalIF":2.0,"publicationDate":"2019-10-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1142/s1094406019500112","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49278486","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-10-09DOI: 10.1142/s1094406019500124
Ahsan Habib, H. Huang
We investigate whether New Zealand charities exhibit cost stickiness, conceptualized as cost increases in response to an increase in income that are greater than the cost decreases associated with an equivalent decrease in income. Drawing on the holistic accountability rationale, we posit that charity managers consider themselves accountable to a wide range of stakeholders and, therefore, are more concerned about the social impact of their managerial decisions. As a result, charity managers will be reluctant to adjust resources downward immediately after an income drop, as such decisions could lead to the loss of trust and confidence of their internal and external stakeholders. Based on a large sample of charities in New Zealand, we find evidence of cost stickiness. Importantly, we find that cost stickiness varies across a number of characteristics of charities, including charity size, sources of income and expenditure, crisis periods, and the sectors within which the charities operate. Our study contributes to a hitherto unexplored setting and provides empirical evidence on the theoretical debate of hierarchical versus holistic accountability in the not-for-profit sector.
{"title":"Cost Stickiness in the New Zealand Charity Sector","authors":"Ahsan Habib, H. Huang","doi":"10.1142/s1094406019500124","DOIUrl":"https://doi.org/10.1142/s1094406019500124","url":null,"abstract":"We investigate whether New Zealand charities exhibit cost stickiness, conceptualized as cost increases in response to an increase in income that are greater than the cost decreases associated with an equivalent decrease in income. Drawing on the holistic accountability rationale, we posit that charity managers consider themselves accountable to a wide range of stakeholders and, therefore, are more concerned about the social impact of their managerial decisions. As a result, charity managers will be reluctant to adjust resources downward immediately after an income drop, as such decisions could lead to the loss of trust and confidence of their internal and external stakeholders. Based on a large sample of charities in New Zealand, we find evidence of cost stickiness. Importantly, we find that cost stickiness varies across a number of characteristics of charities, including charity size, sources of income and expenditure, crisis periods, and the sectors within which the charities operate. Our study contributes to a hitherto unexplored setting and provides empirical evidence on the theoretical debate of hierarchical versus holistic accountability in the not-for-profit sector.","PeriodicalId":47122,"journal":{"name":"International Journal of Accounting","volume":" ","pages":""},"PeriodicalIF":2.0,"publicationDate":"2019-10-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1142/s1094406019500124","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42453690","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-10-09DOI: 10.1142/s1094406019500094
Fu'ad Rakhman, Singgih Wijayana
Most studies addressing the issue of financial reporting quality (FRQ) focus on corporations. This study investigates the determinants of FRQ in the public sector. We use the type of audit opinion as a proxy for reporting quality, with an unqualified opinion representing the best reporting quality while a disclaimer of opinion represents the worst quality. Using manually collected data from 3018 financial reports of local governments in Indonesia from 2008 to 2014, we find that a high proportion of capital expenditures in the total budget is associated with low FRQ. Further, we find that larger and wealthier local governments are associated with higher FRQ. Finally, we find that local governments under more experienced mayors have higher reporting quality. Our results are robust to different measures of FRQ. This study contributes to the reporting quality literature by providing empirical evidence on the determinants of FRQ in the public sector, which has been relatively underexplored. We conclude that certain characteristics of local governments and of mayors are associated with the types of audit opinion and that financial incentives accelerate the improvement of reporting quality.
{"title":"Determinants of Financial Reporting Quality in the Public Sector: Evidence from Indonesia","authors":"Fu'ad Rakhman, Singgih Wijayana","doi":"10.1142/s1094406019500094","DOIUrl":"https://doi.org/10.1142/s1094406019500094","url":null,"abstract":"Most studies addressing the issue of financial reporting quality (FRQ) focus on corporations. This study investigates the determinants of FRQ in the public sector. We use the type of audit opinion as a proxy for reporting quality, with an unqualified opinion representing the best reporting quality while a disclaimer of opinion represents the worst quality. Using manually collected data from 3018 financial reports of local governments in Indonesia from 2008 to 2014, we find that a high proportion of capital expenditures in the total budget is associated with low FRQ. Further, we find that larger and wealthier local governments are associated with higher FRQ. Finally, we find that local governments under more experienced mayors have higher reporting quality. Our results are robust to different measures of FRQ. This study contributes to the reporting quality literature by providing empirical evidence on the determinants of FRQ in the public sector, which has been relatively underexplored. We conclude that certain characteristics of local governments and of mayors are associated with the types of audit opinion and that financial incentives accelerate the improvement of reporting quality.","PeriodicalId":47122,"journal":{"name":"International Journal of Accounting","volume":" ","pages":""},"PeriodicalIF":2.0,"publicationDate":"2019-10-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1142/s1094406019500094","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47436555","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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