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Evaluating the Tax Compliance Costs of Small and Medium Enterprises Operated by Individuals under Alternative Enterprise Tax Regimes in Indonesia(2022) Ferry, FerryThesisThis study investigates the tax compliance costs of small and medium enterprises operated by individuals (individual SMEs) in Indonesia. It estimates and compares these costs under two different tax regimes operated in Indonesia: a presumptive tax regime that applies a single, final tax rate on annual turnover; and the regime that applies a more conventional, progressive tax rate schedule on calculated taxable income. The estimation and comparison involve all components of tax compliance costs, including explicit, implicit, and psychological costs. The research is motivated by two main considerations. First, it focuses on individual SMEs because personal income taxpayers are by far the largest group of all taxpayers in Indonesia (91 per cent in 2018; see (DGT, 2019a)) and the contribution of SMEs is significant for Indonesia’s Gross Domestic Product (63 per cent in 2018; see (Indonesia, 2019)). Secondly, despite their obvious importance, and despite significant research that has been conducted in many parts of the world (Alm, 2019, p. 32), the issue of tax compliance costs borne by individual SMEs in Indonesia has remained a relatively unexplored topic. Moreover, research into the psychological costs of tax compliance and research comparing the compliance costs of two different tax regimes in the same tax system has in each case been particularly limited. Thus, this study proposes a systematic analysis to address a series of research questions related to these under-explored areas relating to the tax compliance costs of individual SMEs in Indonesia. By applying a mixed-modes research method, the study not only reveals the average costs to comply for each taxpayer under different tax regimes, but also identifies the significance of the total costs and the potential drivers of those costs. In addition, further analysis provides a novel understanding of aspects of tax compliance costs by showing how the components of the costs interact with each other. Finally, the findings may be useful for policymakers in Indonesia given that the presumptive tax regime will cease to exist in 2025.
The Effect of the Framing of Coaching Guidance and Communication Mode on Auditors’ Professional Scepticism(2022) Sakchuenyos, PaulThesisRegulators have expressed concerns about the level of professional scepticism of auditors, especially when performing remote auditing. This thesis examines the effect of virtual coaching guidance to enhance professional scepticism of auditors with varying levels of audit experience. Given the importance of communication to reinforce professional scepticism, Study 1 examines the effectiveness of the expression of virtual coaching guidance, expressed either to promote desirable behaviours that positively affect audit quality (promotive coaching) or to prohibit undesirable behaviours that negatively affect audit quality (prohibitive coaching). The results show that the effect of the type of coaching varies with the experience of the coachee. After controlling for coaching goal relevance, less experienced auditors provide marginally more sceptical judgments when receiving promotive coaching, but this is not the case for more experienced auditors. More experienced auditors select actions they believe to be marginally more sceptical when receiving prohibitive coaching, but this is not the case for less experienced auditors. Given the changing nature of auditors to work partially or fully remotely, Study 2 examines the effectiveness of the delivery of virtual coaching guidance, delivered virtually via either video or audio. Study 2 provides evidence that video coaching can be more effective than audio coaching in enhancing sceptical judgments of less experienced auditors but not of more experienced auditors. This thesis contributes to the literatures on auditors’ learning and on professional scepticism by showing that, when coaching methods match with audiences and tasks, coaching can enhance professional scepticism. This thesis should also be of interest to auditors, audit firms, and audit regulators. This thesis informs auditors that it is important that they consider audit experience of coachees when providing coaching. It also provides guidance of how audit firms should train auditors to provide coaching. and informs audit regulators about the importance of the design of coaching activities in audit firms.
THE IMPACT OF CARBON REPORTING SCHEMES AND CREDIBILITY ENHANCEMENT MECHANISMS ON CARBON EMISSIONS GROWTH(2021) Ge, IreneThesisThe ratification of the Paris Agreement has led to a rapid transition towards a mandatory reporting landscape for carbon emissions on a global scale. Demand has increased the need for performance and impact disclosures of carbon emissions at both the country and company levels. Extant research literature currently lags the regulatory momentum and development of carbon disclosures in examining the benefits of regulatory reporting schemes, as well as credibility enhancement mechanisms such as carbon assurance. My thesis examines the impact of carbon reporting schemes and credibility enhancement mechanisms, carbon policy risk, and the cost of debt financing on carbon emissions growth. Study One examines the impact of variations of current carbon-related reporting schemes across countries. It uses a panel of 123 countries (1,600 country-year observations) covering the period 1990-2016. Study Two differentiates between home and host countries’ reporting schemes for multinational companies and collects 6,664 observations from 45 countries covering the period 2011- 2017. My results reveal that the strength of carbon reporting schemes and credibility enhancement mechanisms contribute to curbing carbon emissions growth at the country and the company level. The effects of credibility enhancement mechanisms are both robust and enduring. There is also evidence of a trade-off between the strength of reporting schemes and credibility enhancement mechanisms. My results demonstrate that the credibility of reported carbon emissions is a critical first step in working towards climate change mitigation. Study Three employs data sets from the first two studies and measures the impact of carbon policy risk. It finds that carbon policy risk, and the cost of debt financing, have a negative association with carbon emissions growth. This provides evidence of the role of financial institutions in facilitating a client company’s carbon emissions reduction. My thesis results constitute empirical evidence that informs both companies regarding the benefits of undertaking carbon assurance and emissions reduction programs in the face of diverse regulatory reporting schemes, and global and national regulators regarding the role of accounting and credibility enhancement mechanisms in holding countries and companies accountable for carbon emissions growth. Strengthening reporting schemes and emphasizing credibility enhancement mechanisms could aid in slowing down carbon emissions growth.
The Effects of Electronic Round-robin Brainstorming and an Explicit Idea Evaluation Process on Auditors’ Fraud Planning(2022) Zhang, JessicaThesisAuditing standards require engagement team members to brainstorm the susceptibility of their clients’ financial statements to material misstatement due to fraud. The format of the brainstorming is not specified in the auditing standards but is continually evolving in practice with the increased use of audit technology. This thesis considers an electronic round-robin brainstorming and an explicit idea evaluation process in fraud brainstorming and investigates the effects of these two interventions on auditors’ brainstorming performance in fraud planning. I use a 2 × 2 between-subject experimental design with 78 experienced auditors in Australia as participants. The electronic round-robin brainstorming is manipulated at two levels: absent and present. The explicit idea evaluation process is also varied at two levels: absent and present. Therefore, the four experimental treatments are control condition, round-robin condition, explicit idea evaluation condition, and combined condition. Auditors in the round-robin condition and combined condition are asked to take turns with another team member to share their fraud hypotheses generations. The inputs of the other team member are pre-programmed in the computer system. Auditors in the explicit idea evaluation condition and the combined condition are asked to provide an explicit idea evaluation immediately after they receive each of the inputs of the other team member. The auditors’ brainstorming performance is measured as the overall quantity of unique valid fraud hypotheses generated in all three brainstorming stages. Moreover, I examine auditors’ information search and processing during fraud brainstorming. Results show that auditors in the round-robin condition have better brainstorming performance than those in the control condition and it is because they pay a higher level of attention to their team member’s inputs. However, the brainstorming performance of auditors in the explicit idea evaluation condition is not different from those in the control condition and below those in both the round-robin condition and the combined condition. There is no performance difference between auditors in the round-robin condition and those in the combined condition. Furthermore, I find that the inputs of the other team member influence auditors’ information search.
(2022) Wang, JunThesisTwo recent changes in corporate reporting involve the inclusion of both GAAP and non-GAAP earnings in the annual report and the inclusion of Key Audit Matters (KAMs) in the auditor's report. Managers have discretion in determining the excluded items in non-GAAP reporting. The frequently excluded items in non-GAAP earnings, such as goodwill impairment loss, are also frequent items discussed in KAMs. The research on non-GAAP earnings excluding a KAM item helps us understand how the auditor's report can impact investors' use of non-GAAP measures. This dissertation provides evidence on how investors react to managers' non-GAAP reporting and auditors' KAM disclosures through two studies. In Study One, I conduct a 2×2 between-subjects experiment to investigate the joint effect of excluding a KAM item relating to goodwill impairment loss from non-GAAP earnings and investor position on investor judgments. Drawing on motivated reasoning theory, I predict and find that for investors holding a long (short) position, investors perceive management to be more (less) credible when non-GAAP earnings exclude a KAM item than when non-GAAP earnings do not exclude a KAM item. In addition, lower management credibility assessments result in higher impairment loss estimates (i.e., less favourable earnings-related judgments). These findings inform regulators and managers on the impact of KAM disclosures on investors' reactions to non-GAAP reporting. Study Two holds constant the investor position as long investors, and the non-GAAP earnings with a KAM item excluded. I conduct a 1×4 between-subjects experiment. The four conditions are the high awareness of management discretion in non-GAAP earnings condition, the high auditor scepticism implied in the KAM disclosures condition, the audit outcome presence in the KAM disclosures condition, and a control condition without any treatment. I find that when investors have a higher awareness of management discretion in non-GAAP reporting, their earnings-related judgments are more favourable than those who have lower awareness of management discretion in non-GAAP earnings (i.e., the control condition). The level of scepticism implied in the description of how the KAM was addressed in audits and including the outcome of the auditor's procedures in the KAM disclosures do not significantly affect long investors' earnings-related judgments.
The Effects of Auditors’ Online Information Search Effort in the Settings of Regulatory Reviews and Business Combinations(2023) Han, MiaodiThesisThis thesis examines whether non-client companies’ online disclosures serve as an external information source for auditors and whether auditors’ searches for such information facilitate their audit process and influence the outcomes in various important corporate event settings, including regulatory reviews by the U.S. Securities and Exchange Commission (SEC) and mergers and acquisitions (M&A). Specifically, I exploit the clickstream data from the SEC’s EDGAR system, which allows me to track audit firms’ access to public firms’ electronic filings to investigate the effects of auditors’ information searches on the outcomes of regulatory reviews and M&A. The first study examines the usefulness of non-client industry peer companies’ financial filings for auditors to resolve the SEC’s review process on their clients. I hypothesize and find that audit firms can facilitate the resolution of the SEC’s comment letters for their clients through the disclosure benchmarking strategy against their client’s industry peers. Further analyses suggest that this benchmarking effect on the resolution of the regulatory process operates through two economic channels related to regulatory risk and information endowment. In addition, I find a positive association between the auditor’s disclosure benchmarking of peer firms in the regulatory process and their client’s future financial reporting quality. These findings highlight the usefulness of industry peer firms’ filing information to auditors in the SEC review process and provide significant implications for managers, regulators, and auditors with regard to the review process. The second study investigates the effect of information search effort by the acquirer’s auditor on post-M&A audit quality. I predict and find greater M&A-related information search effort by the acquirer’s auditor through accessing the target firm’s filings is associated with better post-acquisition audit quality. This effect is more pronounced when the acquirer’s auditor has less M&A experience, when the target firm has a lower analyst following, and when the deal value is greater. Further evidence also shows the auditor information search effort is associated with better audit efficiency. These findings inform managers, audit firms, and other stakeholders by showing that the information search effort on the target firm’s filings by the acquirer’s auditor improves post-M&A audit quality, which has been an issue of concern to these stakeholders.