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The effect of simplified cash accounting on tax and financial accounting compliance costs

Author

Listed:
  • Kay Blaufus

    (Leibniz Universität Hannover, Institute of Business Taxation)

  • Franziska Hoffmann

    (Leibniz Universität Hannover, Institute of Business Taxation)

Abstract

In many countries simplified methods for tax accounting are considered as important step to reduce tax complexity and thereby the compliance cost burden of particularly small businesses. Using two surveys among (1) small businesses and (2) tax advisors, this study examines the effect of cash-based versus accrual accounting on tax and financial accounting compliance cost. While the results of the first study are ambiguous, the second study shows that cash-based accounting is associated with a decrease of external compliance costs of small firms by about 30%. This relative benefit decreases slightly with the size of the business. However, we do not find that the usage of cash-based accounting reduces the demand for professional tax advice.

Suggested Citation

  • Kay Blaufus & Franziska Hoffmann, 2020. "The effect of simplified cash accounting on tax and financial accounting compliance costs," Journal of Business Economics, Springer, vol. 90(2), pages 173-205, March.
    • Handle: RePEc:spr:jbecon:v:90:y:2020:i:2:d:10.1007_s11573-019-00943-4
    DOI: 10.1007/s11573-019-00943-4
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    References listed on IDEAS

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    1. Kay Blaufus & Frank Hechtner & Janine K. Jarzembski, 2019. "The Income Tax Compliance Costs of Private Households: Empirical Evidence from Germany," Public Finance Review, , vol. 47(5), pages 925-966, September.
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    More about this item

    Keywords

    Cash-based accounting; Accrual accounting; Tax complexity; Tax simplification;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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