Earnings management is currently a hot topic widely studied in accounting circles at home and abroad. .and. believes that earnings management occurs when management uses professional judgment to prepare financial reports and plans transactions to change financial reports. The purpose is to mislead those stakeholders who are based on the company's economic performance or influence those who rely on accounting reports as a basis. Consequences of the underlying contract. The motives and methods of earnings management are very complex. Chinese enterprises or listed companies have strong earnings management motives when they are issuing shares, alloting shares, or avoiding delisting. There are a large number of earnings management behaviors and there are practices of abusing earnings management. Similar behavior is not uncommon among unlisted companies. How to correctly examine and guide the earnings management behavior of my country's listed companies has important theoretical value and practical significance at the current stage. This article analyzes several common earnings management behaviors.
A related-party transaction type of earnings management
The company's annual main business income of 100 million yuan and net profit of 10,000 yuan came from three major businesses: clothing (suits, cheongsam), stationery and printing. The most important sales revenue and profits come from the sales of clothing, namely suits and cheongsams. The sales revenue of these two types of products totals . % of profit. The company's mid-year report disclosed that the sales revenue of suits in clothing has been achieved in the first half of the year, and only some cheongsam products were sold in the second half. In fact, the above-mentioned sales of suit products from related-party transaction companies were actually all sold to a holding subsidiary that once held % equity in the company. The company signed a general agency contract with this subsidiary and sold a large number of suits to it, thus confirming sales revenue of 1.0 billion yuan in the first half of the year. Subsequently, this subsidiary underwent a series of equity transfers in the second half of the year. On the day of the year, a large investment company increased its capital in this subsidiary, and the company's shareholding ratio was reduced to %. On the day of the year, the company signed an equity transfer agreement with another investment company to transfer all the equity it still held in the subsidiary to the investment company. Therefore, on the day of the year, the company no longer held any equity in the subsidiary. The huge sales that occurred before the related parties were converted into non-related parties through the above two equity transfers will not be offset by the consolidated statements, nor will they be subject to the temporary regulations that the gross profit from sales exceeds % and is included in the capital reserve. Related party transaction-type earnings management is currently a relatively typical form. It is necessary to examine the existing regulatory measures for related party transactions and the new changes in the profit manipulation methods of related party transactions. It is necessary to study new normative countermeasures to further standardize related party transactions.
Second asset replacement type earnings management
The so-called asset replacement refers to injecting high-quality assets other than listed companies into listed companies and replacing the original low-quality assets of listed companies to maintain that listed companies will always be a company composed of high-quality assets. composed combination. The purpose of asset replacement for listed companies is to improve the company's asset structure, expand the company's business areas, and improve asset operation efficiency and sustainable operating capabilities. A joint-stock company in a coastal city suffered serious losses in 2016. The uncompensated losses at the end of the year were as high as 100 million yuan. After deliberation at the company's board of directors meeting and approval by the company's extraordinary general meeting of shareholders, the company's wholly-owned chemical fiber subsidiary and the land use rights of a building (assessed at a price of . The replacement removed the chemical fiber business from the main business and added the port transportation business. Achieving a profit of RMB 10,000 through asset replacement enabled the company to achieve a profit of RMB 10,000 in the middle of the year and saw hope of turning around losses. After restructuring, the company's asset quality and operating performance have been comprehensively improved. The company's main business has also shifted from the traditional chemical fiber industry to the city's important pillar industries, port and petrochemical industry. It can be seen that earnings management is carried out within the scope allowed by accounting regulations. The purpose is to improve the performance of listed companies and is by no means a profit adjustment based on corporate production and operations. Professional managers must distinguish earnings management from accounting fraud.
Three Share Transfer Earnings Management
Share transfer is the act of a listed company transferring the equity it holds in other companies at a high price. A cotton textile factory was restructured into a joint-stock company on the year, month, and year with government approval. The company's registered capital is RMB 10,000, of which state shares account for RMB 10,000, accounting for % of the total share capital, and public shares RMB 10,000 account for % of the total share capital. The main business of this joint-stock company is the production and sales of cotton yarn, cotton cloth and real estate development and operation. In recent years, due to the deterioration of the overall environment of the textile industry and the obsolescence of the company's cotton textile production equipment, the company has adopted measures such as limiting production and pressing spindles to develop new products, downsizing and diversion to reduce costs and increase efficiency, but its main business has continued to suffer huge losses. Therefore, on the day of the year, the company transferred its 10,000 shares of equity in a group company to another holding group company (this company is controlled by the same company as the company) at a price of . . The company was finally miraculously pulled back from the brink of loss thanks to this sudden transaction only two or three days before the end of the fiscal year. In addition, in the context of China's economic globalization and accession, foreign-funded mergers and acquisitions with foreign capital as the main acquisition body and characterized by strategic acquisitions are increasingly attracting the attention of all parties. Share-transfer earnings management has also ushered in a broader space for development. Of course, we must also consider the loss of state-owned assets caused by transfer.
Four false accounting-type earnings management
Earnings management can only be carried out within the scope of accounting standards or systems. Once it exceeds the scope of accounting standards and systems, it becomes profit manipulation. Qiong Minyuan's full name is Hainan Modern Agriculture Development Co., Ltd. It was once one of the most dazzling dark horses in the Chinese stock market. When the Shenzhen Stock Exchange Index was at its trough before 2009, its stock price was only around 100 yuan. After the market turned for the better and entered a bull market, Qiong Minyuan's stock price returned to its value along with the broader market, and its stock price more than doubled. Because in the bear market for several years, it is not surprising that such undervalued stocks have doubled or tripled in value. However, after a month of consolidation, Qiong Minyuan started at . Yuan on March 1. In the past four months of unilateral rise, its stock price has pointed to . Yuan and has multiplied several times. At this time, Qiong Minyuan seemed to have jumped from a junk stock that no one patronized to a highly sought-after blue chip stock. It even replaced the leading position of Shenzhen Development Bank and became the forerunner to launch the strengthening of the Shenzhen market and the revolution of low-priced stocks. The stock price rose by as much as % throughout the year. . So far, a remarkable stock market myth has been created. Qiong Minyuan added an even more eye-catching stroke to the series of astonishing moves. The company took the lead in publishing its annual report on the day of the year. This annual report, which is dubbed as a shining debut, clearly lists the earnings per share. Net profit increased by . As soon as the annual report came out, the market was shocked and the stock price hit a new high of . yuan. Some of the cheerers stamped their feet, while others hated and the ignorant even made their palms sweat. Some sober-minded people expressed their confusion as to where Qiong Minyuan’s impressive performance and profits came from? As expected, the company was later accused of creating false financial accounting. The company's stocks that were investigated and punished as a result of the report were also suspended from trading on the day of the year. After more than a year of long and painful waiting and anticipation, the China Securities Regulatory Commission announced the investigation results and handling opinions on the Qiong Minyuan case on January 1, 2019. The investigation found that 100 million yuan of the 100 million yuan profit stated in Qiong Minyuan's annual report was fictitious and the capital reserve fund had been inflated by 100 million yuan. In view of the suspected criminal behavior of Ma Yuhe, the former chairman and general manager of Qiong Minyuan, and others in creating false financial data, the China Securities Regulatory Commission will immediately transfer the relevant materials to the judicial authorities.
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