Template-Type: ReDIF-Article 1.0 Author-Name: Mingjun Zhou Title: VALUE RELEVANCE OF BOOK AND TAX INCOME: A MACROECONOMIC CONDITIONS PERSPECTIVE Abstract: This paper tests how macroeconomic conditions affect the value relevance of book and tax income. Based on regression coefficient estimates, more than 8% in the value relevance of book income is dependent on the interaction with a proxy for the macroeconomy. For a possible policy change where tax rules have a greater influence on financial accounting, the erosion of earnings quality will be more pronounced during economic expansion than contraction. Under such policy change, investors may lose additional information for them to price earnings based on stages of the economy. Classification-JEL: E30, H25, M41 Keywords: book income, tax income, book-tax conformity, earnings quality, macroeconomic conditions Journal: Accounting & Taxation Pages: 1-12 Volume: 4 Issue: 2 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v4n2-2012/AT-V4N2-2012-1.pdf File-Format: Application/pdf Handle: RePEc:ibf:acttax:v:4:y:2012:i:2:p:1-12 Template-Type: ReDIF-Article 1.0 Author-Name: Kevin A. Diehl Title: WHY HIGHER LEVELS OF AUDITOR-PROVIDED TAX SERVICES LOWER THE LIKELIHOOD OF RESTATEMENTS Abstract: Kinney et al. (2004) ask in the Journal of Accounting Research: Why do higher levels of auditor-provided tax services lower the chances of restatements? In resolving this question, this paper investigates the relationship between auditor-provided tax services and restatements with proxies to represent the motivations of the audit committee and chief financial officers. Because Sarbanes-Oxley requires audit committee preapproval for these tax services, the necessity for including these variables is obvious. Logistic regression of seven specifications show that higher levels of auditor-provided tax services, financial experts, and long-term compensation are inversely and statistically significantly related to all restatements and (more strongly) to tax-influential restatements. The cash effective tax rate directly and statistically significantly relates to those specifications, showing that just increasing spending on these tax services cannot signal high-quality financial reporting in the absence of effective utilization. Classification-JEL: H20 Keywords: restatements, audit committees, tax Journal: Accounting & Taxation Pages: 13-30 Volume: 4 Issue: 2 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v4n2-2012/AT-V4N2-2012-2.pdf File-Format: Application/pdf Handle: RePEc:ibf:acttax:v:4:y:2012:i:2:p:13-30 Template-Type: ReDIF-Article 1.0 Author-Name: Laura Lee Mannino Title: IS THE IRS A SORE LOSER? Abstract: Like all administrative agencies, the Internal Revenue Service is given a fair amount of authority to enforce the laws enacted by Congress. Taxpayers often question the amount of authority granted to the Internal Revenue Service, and whether such authority is abused. In some situations this questioning of authority leads to litigation, resulting in both wins and losses for the Internal Revenue Service. From time to time, the Internal Revenue Service will respond to losses by creating a new rule or amending an existing one. Recent examples in the judicial system highlight the issue of administrative authority, and beg the question: Is the Internal Revenue Service a sore loser? Classification-JEL: H24, H26, H32, M42, M48 Keywords: Administrative authority, Internal Revenue Service, response to litigation Journal: Accounting & Taxation Pages: 31-38 Volume: 4 Issue: 2 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v4n2-2012/AT-V4N2-2012-3.pdf File-Format: Application/pdf Handle: RePEc:ibf:acttax:v:4:y:2012:i:2:p:31-38 Template-Type: ReDIF-Article 1.0 Author-Name: Linda Margarita Medina Herrera Author-Name: Ernesto Armando Pacheco Velázquez Title: DISTANCES AND NETWORKS: THE CASE OF MEXICO Abstract: The influence of six different distances on the structure of minimum spanning trees is presented in this paper. Measures of complex networks are built based on the closing prices of stocks of the main companies traded on the Mexican Stock Market. We find that the City block and Chi distances not only match, but also determine more precisely the central vertex, the level of the tree and the clusters formed by the economic sector. The trees formed using Minkowski distances have similar structures and show a disadvantage when classifying the vertices. The construction and telecommunication sectors are most important within the trees, regardless of the distance used. Classification-JEL: C02, C22, C38, C45, C61, C8, D85 Keywords: Stock market network. Econophysics. Distances. Minimum spanning tree. Journal: Accounting & Taxation Pages: 39-48 Volume: 4 Issue: 2 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v4n2-2012/AT-V4N2-2012-4.pdf File-Format: Application/pdf Handle: RePEc:ibf:acttax:v:4:y:2012:i:2:p:39-48 Template-Type: ReDIF-Article 1.0 Author-Name: Abdullah Mohammed Alzharani Author-Name: Ayoib Che-Ahmad Author-Name: Khaled Salmen Aljaaidi Title: FACTORS ASSOCIATED WITH FIRM PERFORMANCE: EMPIRICAL EVIDENCE FROM THE KINGDOM OF SAUDI ARABIA Abstract: This study investigates the relations between agency cost variables (firm size, leverage and auditor type) and the firm performance of 392 listed companies in the Saudi Stock Exchange (Tadawul) during 2007- 2010. This study identifies two measurements of the firm performance: (1) ROA and (2) ROE. Using the multiple regression, the results of this study show that the likelihood a firm performance (ROA) is significantly affected increases with the firm size. On the other hand, leverage and auditor type have no influence on the firm performance. Interestingly, the explanatory power of firm performance (ROA) model is high. Somewhat surprisingly, model (2)'s explanatory power is insignificant indicating to the inability of the proposed variables (firm size, leverage and auditor type) in explaining the expected effect on firm performance (ROE). Classification-JEL: M41 Keywords: ROA, ROE, Kingdom of Saudi Arabia Journal: Accounting & Taxation Pages: 49-56 Volume: 4 Issue: 2 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v4n2-2012/AT-V4N2-2012-5.pdf File-Format: Application/pdf Handle: RePEc:ibf:acttax:v:4:y:2012:i:2:p:49-56 Template-Type: ReDIF-Article 1.0 Author-Name: Ali Atilla Perek Author-Name: Seda Perek Title: RESIDUAL INCOME VERSUS DISCOUNTED CASH FLOW VALUATION MODELS: AN EMPIRICAL STUDY Abstract: Valuation plays a central role in the financing, investing and operating decisions of companies and many methods are employed to approximate the true value of a company. Although these techniques are based on similar theory, they may generate different results in application. This study incorporates an empirical approach to compare the outcomes of two different methods: residual income and discounted cash flow valuation models. The aim of this study is to test whether these methods result in different values and to contribute to the understanding of why these two valuation techniques, although similar in theory, may generate different results when applied to real life companies. There are a number of studies that compare these two methods theoretically. Some studies claim the superiority of one method over the other and some argue that these two methods should yield the same results when applied properly. In this study, the residual income and discounted cash flow models are applied to nine Turkish companies and the results are compared. We have obtained the data for the study with site visits to the companies and with the help of the managements of the companies. Classification-JEL: G32 Keywords: Valuation, Residual Income Model, Discounted Cash Flow Model, Accounting Based Valuation, Case Study, Turkey Journal: Accounting & Taxation Pages: 57-64 Volume: 4 Issue: 2 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v4n2-2012/AT-V4N2-2012-6.pdf File-Format: Application/pdf Handle: RePEc:ibf:acttax:v:4:y:2012:i:2:p:57-64 Template-Type: ReDIF-Article 1.0 Author-Name: Olga Ferraro, Title: COMPREHENSIVE INCOME DISCLOSURES: EVIDENCE FROM ITALY Abstract: International Accounting Standard No. 1 was released in 2007. The standard required publicly traded companies to separately report comprehensive income in the financial statements. International Accounting Standard No. 1 prescribed two alternative formats for the presentation without mandating any one specific format. It also provides other options such as the criterion for classification of expenses and the presentation of Other Comprehensive Income items at net or gross of tax. The present study examined the presentation of comprehensive income by a sample of companies listed on the Italian Stock Exchange. The goal is to define the degree of homogeneity of the income statements and to explore current correlation between the direction and size of the Other Comprehensive Income and to identify the prescribed method to present Comprehensive Income. The results show substantial uniformity across Italian companies, with regard to how company accountants present Other Comprehensive Income in their financial statement. Also, the results lead us to believe that the choice of two separate statements may be linked to the greater relative size of the Net income. Classification-JEL: M41 Keywords: IAS 1, reporting format, comprehensive income, consolidated financial statement Journal: Accounting & Taxation Pages: 65-76 Volume: 4 Issue: 2 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v4n2-2012/AT-V4N2-2012-7.pdf File-Format: Application/pdf Handle: RePEc:ibf:acttax:v:4:y:2012:i:2:p:65-76 Template-Type: ReDIF-Article 1.0 Author-Name: Lynda S. Livingston Title: COULD PEER-TO-PEER LOANS SUBSTITUTE FOR PAYDAY LOANS? Abstract: Many consumer advocates consider payday loans—short-term, uncollateralized loans with high interest rates—to be predatory. The demand for short-term funding has spurred the quest for a substitute, an effort encouraged and supported by regulators like the Federal Deposit Insurance Corporation. In this paper, we evaluate the potential for online peer-to-peer markets to provide this alternative. We conclude that while certain features of peer-to-peer loans would be well suited (such as their longer terms, larger amounts, and multiple payments), the longer time to fund and the required minimum credit scores for borrowers present meaningful hurdles. Classification-JEL: G18, G21, G28 Keywords: Fringe Lending, Payday Loans, Peer-to-Peer Loans Journal: Accounting & Taxation Pages: 77-94 Volume: 4 Issue: 2 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v4n2-2012/AT-V4N2-2012-8.pdf File-Format: Application/pdf Handle: RePEc:ibf:acttax:v:4:y:2012:i:2:p:77-94 Template-Type: ReDIF-Article 1.0 Author-Name: Igor Pustylnick Title: AN ALGORITHM FOR THE DETECTION OF REVENUE AND RETAINED EARNINGS MANIPULATION Abstract: This paper presents a statistical analysis confirming the former empirical findings that positive differences between the growth rates of P-Score and Z-score appears in financial statement data of companies involved in major financial fraud. The paper examines firms that engaged in fraud in the late 1990’s through early 2000’s. The paper reports the results of regression analysis, using ratios, from financial statement data used in the calculations of P-Score and Z-Score. The results show that positive values of the difference between the growth rates of P-Score and Z-Score correlate with Net Income, Revenue, Retained Earnings and Total Equity ratios. Both ratios represent the financial statement areas where most identified fraud occurred. The findings imply that positive differences between the rates of growth suggest financial statement manipulation. The standard error of the estimate shows the early linear regression to be coarse. The final part of the paper optimizes the linear regression formula and discusses its limits. The paper shows the potential uses of Extensible Business Reporting Language (XLRB) for getting the necessary values for algorithm calculations. Classification-JEL: M41, M42, M48 Keywords: Financial statements, fraud, manipulation, Z-Score, P-Score, revenue, retained earnings, XBRL Journal: Accounting & Taxation Pages: 95-105 Volume: 4 Issue: 2 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v4n2-2012/AT-V4N2-2012-9.pdf File-Format: Application/pdf Handle: RePEc:ibf:acttax:v:4:y:2012:i:2:p:95-105 Template-Type: ReDIF-Article 1.0 Author-Name: Fazeena Fazneen Hussain Author-Name: Priyashni Vandana Chand Author-Name: Prena Rani Title: THE IMPACT OF IFRS FOR SMES ON THE ACCOUNTING PROFESSION: EVIDENCE FROM FIJI Abstract: At the turn of the millennium, the many corporate collapses and fraudulent financial reporting practices tarnished the reputation of accountants and resulted in a credibility crisis for the accounting profession. The profession responded by developing IFRS and IFRS for SMEs that would assist in achieving a more transparent and principles-based financial reporting framework. Fiji is not far behind from other developed countries when it comes to adoption of international reporting standards as this is evidenced by the early adoption of IFRS by large reporting entities beginning January, 2007 and IFRS for SMEs by small and medium-sized entities from January, 2011. Unlike the non-big 4 accountancy firms (local firms) in Fiji, the big 4 firms (PricewaterhouseCoopers, KPMG, Ernst and Young and G.Lal) have necessary resources and expertise to assist in adoption of international reporting standards like IFRS and IFRS for SMEs. This study therefore, examines the preparedness, capacity and challenges faced by big 4 and non-big 4 accounting firms in dealing with IFRS for SMEs in Fiji through in depth interviews. The results show the big 4 have a competitive advantage over the non-big 4 as they have substantial resources, expertise and receive training support from their global network. Classification-JEL: M41 Keywords: IFRS for SMEs, Profession, Emerging Economies Journal: Accounting & Taxation Pages: 107-118 Volume: 4 Issue: 2 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v4n2-2012/AT-V4N2-2012-10.pdf File-Format: Application/pdf Handle: RePEc:ibf:acttax:v:4:y:2012:i:2:p:107-118