The Importance Of Accounting Earnings Management

Moderate earnings management is beneficial to companies and their stakeholders. With the moderate regulation effect of earnings management, it can support the stability and rise of the company's stock price, and it can also achieve tax savings and even reduce the business risk of enterprises.

Earnings management refers to some characteristics such as increasing profits, reducing profits, smoothing profits, etc. by means of accounting policy choice, certain financial arrangements and adjustment of operation mode, etc. Earnings management is a neutral term. It has two understandings: vicious earnings management and good earnings management.

　　 Vicious earnings management Equivalent to accounting manipulation, it often breaks through. accounting policy The bottom line and the bottom line of business can only temporarily satisfy the management's interest demands, but contrary to the goal of maximizing the value of the company. Playing digital games with profit can only deceive investors for a while. No matter how clever their methods are, they will always leave behind clues. Eventually, they will get the fate that "they will be caught". China's silver Guangxia, Lantian shares, Enron and WorldCom of the United States are clear proof.

The good earnings management is limited to the bottom line of the accounting policy and the bottom line of the business. Moderate earnings management is beneficial to the company and its stakeholders. With the moderate adjustment effect of earnings management, it can transfer the stable accounting information to the capital market, thus supporting the stability and elevation of the company's stock price. Benign earnings management It can also achieve tax savings and even reduce business risks.

Management should make good use of good earnings management. In terms of the means of achieving good earnings management, it can be divided into four types: accounting earnings management, financial surplus management, operation surplus management and strategic earnings management. These four types of earnings management can be divided into three levels according to their implementation: pre earnings management, earnings management in the event and earnings management afterwards.

Accounting earnings management refers to the expected results of accounting statements through the rational choice of accounting policies. Accounting earnings management is the most widely used and well known. It is also the lowest cost and the most concise means of earnings management. Accounting earnings management has no real impact on enterprise management, but it can change accounting results. Accounting earnings management requires flexible accounting and application of accounting standards.

Compared with the original accounting system, the new accounting standard has introduced the concept of fair value. It has introduced fair value measurement attributes in financial instruments, non monetary assets exchange, investment real estate, non joint control types of corporate merger and debt restructuring. Although the criteria strictly restrict the use conditions of fair value, it depends on the professional judgment of accountants and the reports of asset appraisal institutions. The management authority uses fair value to carry out earnings management.

For example, the method of account receivable bad debt preparation is changed from aging analysis method to migration model method. When the provision for bad debts is prepared, the individual major accounts receivable will be tested separately, and a single non major accounts receivable will be divided into asset portfolios according to the characteristics of "overdue" and "unexpired". All these means can have a certain impact on profits. In addition, earnings management is also carried out with the change of depreciation policy of fixed assets.

The new accounting standards stipulate that the expenditure on scientific and technological development that meets certain conditions can be capitalized instead of being recorded in the current profit and loss as the original accounting system. In 2007, the net profits of many high-tech small and medium board listed companies have increased to varying degrees. From the annual reports of these enterprises, it is found that this is mainly due to the provisions on Capitalization of R & D expenses in the new accounting standards.