Andrew Bauer

Tax Avoidance and the Implications of Weak Internal Controls

I examine whether corporate tax avoidance is associated with internal control weaknesses (ICWs) disclosed under the Sarbanes-Oxley Act (SOX). ICWs disclosed under SOX are frequently related to a firms tax function. When pervasive ICWs exist, the likelihood increases that these frequent tax-related ICWs spill over from financial reporting issues to tax avoidance objectives. Thus, my research helps corporate stakeholders understand the implications of internal controls beyond simply financial reporting objectives. Results indicate that, on average, firms with a tax-related ICW have a 4 percent higher three-year cash effective tax rate relative to firms without any such weaknesses. Further estimates reveal that this negative relation stems from pervasive, company-level tax ICWs. Analysis of remediation suggests a causal link. I find that after remediating tax-related ICWs, firms report higher levels of tax avoidance in the future. Broadly, these findings support that internal control quality represents a proxy for internal governance, and thus the strength of alignment between managers and shareholders. Furthermore, tax-related internal controls represent an important underlying determinant of tax avoidance with significant cash flow effects, and implications beyond financial reporting.

Impacts of mid- to late-Holocene land use on residual hill geomorphology: A remote sensing and archaeological evaluation of human-related soil erosion in central Karnataka, South India

This paper describes the impacts of Neolithic Period (c. 5000–3200 cal. BP) and Iron Age (c. 3200–2300 cal. BP) occupation and land use on the geomorphology of residual hills that punctuate an expansive planation surface in central Karnataka, South India. Analyses of archaeological survey data, soil and regolith profiles, remotely sensed metrics of hill morphology and distributions of soil and sediment, and paleoecological data indicate that cultural land use altered the morphology of these features and the distribution of soils on them, and consequently impacted the processes by which they continued to develop. Statistical regression models indicate that archaeological evidence for ancient land use is a significant explanatory variable for the proportion of remaining soil cover and exposed residual rock on the sampled hills. Moreover, multivariate regression models explaining soil removal on the hills are effective when including archaeological proxies for ancient land use along with other geomorphological variables. The combined effects of intensified agro-pastoral land use, vegetation changes, and variations in climatic humidity during the mid-Holocene to late Holocene appear to have facilitated erosional conditions that outpaced subsurface weathering. These findings imply that the refinement of models for the development of residual hills in South India, where early paradigms for explaining the evolution of such landforms were formalized, should consider the effects of Holocene land use where applicable. The findings also suggest that recent efforts to understand the unique ecology of these landforms should account for historical human land use.

Examining Contributions to Core Consumer Inflation Measures

The purpose of this paper is to examine the composition of inflation over time. The authors calculate the contributions to inflation for individual series of the consumer price index (CPI) and personal consumption expenditures price index (PCEPI) and then aggregate those contributions into major consumer expenditure categories. This technique provides a wealth of information concerning aggregate inflation behavior in a concise way, enabling the authors to describe the composition of inflation at any point in time. A particularly important benefit of this method is that it allows them to distinguish broad-based changes in inflation from changes due to relative price movements of a few components. The authors examine long-term trends in contributions to PCEPI core inflation and make inferences about the direction of inflation in the near term. In addition, they examine the decline in CPI core inflation over the 2002–03 period and find that the decline was largely driven by relative price changes of two components.

Reliability Makes Accounting Relevant: A Comment on the IASB Conceptual Framework Project

Abstract In July 2013, the International Accounting Standards Board (IASB) welcomed comments to their discussion paper A Review of the Conceptual Framework for Financial Reporting. We argue that the IASB should revisit its decisions about the concepts of reliability and prudence, to address the inherent accounting issue of moral hazard. Within the contexts of goodwill and securitization accounting, we illustrate how reliability and prudence can help standard-setters to identify standards that can address moral hazard. We further illustrate the pervasiveness of moral hazard, using the context of executive compensation arrangements. Ultimately, we conclude that a strong conceptual framework should enhance the credibility of financial reporting. We view this as the fundamental role of accounting.