By analyzing the advantages and disadvantages of earnings management

In recent years, our country enterprise there is a lot of earnings management behavior, and shows diverse, complex forms. Increasingly common of earnings management behavior in a certain extent although improves enterprise image, encourage enterprise operator, is helpful to improve the value of the enterprise, but from another perspective, is not standard of earnings management behavior reduces the public company accounting information quality, misleading information users investment decision on investor confidence of investment and the stock market long-term and stable development, and damages the overall interests of the state, the interests of small and medium shareholders and creditors' interests. So is concerned, the further understanding of the advantages and disadvantages of earnings management, master the use of the degree of earnings management, this paper is to research purposes.

Key words surplus management; The advantages and disadvantages; Moderate use

Earnings Management (Eamings Management) is the enterprise Management accounting standards in follow the basis, through the enterprise external reports of accounting income information to control or adjust, in order to achieve the main body of maximising their own interests.

A, the characteristics of earnings management

Earnings management in the domestic and foreign enterprise is a widely used, its characteristic mainly displays in the following aspects:

1, surplus management are the subject of the enterprise management. Enterprise surplus management information disclosed by the board of directors and the management is the force of the decision, in earnings management have power to make decisions in the general manager of the company is, managers and the board of the directors. That is, the accounting policies and accounting method, the choice of accounting methods, and accounting of incorrect use of accounting methods to estimate changes, using choose points of the trade in the items of the table and control, and the final decision in their hand, and they play a major role by earnings management. Of course, accounting personnel will also take part in, but as a supporting role.

2, the object of earnings management is enterprise external reports of surplus information. The object of earnings management is mainly according to generally accepted accounting principles, accounting methods, and accounting information of foreign report estimated earnings. In the use of earnings management, have to also have the concept of space and time. General accounting standards, accounting methods, and accounting estimate earnings management space factor belongs to; Accounting methods and trading in the items of the choice of point can be as earnings management time factors, but earnings management or accounting data of the final object itself, that is, the final results of earnings management accounting income data reflected in.

3, surplus management will not increase or decrease in the social practice surplus. The choice of accounting methods, and accounting method of usage and accounting estimates, the change of accounting methods and trading matters happened at the 1 control, are typical of earnings management means. From a long enough time to see, earnings management does not increase or decrease of the actual social surplus, but will change the actual surplus in enterprise accounting period or different distribution of different enterprises. In other words, the surplus management will only affect the enterprise a period or different the enterprise accounting report earnings, and won't increase or decrease in the whole society actual surplus.

4, the purpose of earnings management is clear and complex. Earnings management clear purpose, is to get private interests or the local interest, but with the public interest, neutrality principles is contradictory. The purpose of earnings management is very complex, especially in who is the beneficiary of earnings management this point. Earnings management is the main consideration in the interests of the enterprise management, such as manager of share out bonus, subscribe equity, the local interest and promotion opportunity, etc. Sometimes, the beneficiary of earnings management and includes the associated part of shareholders, and even government officials.

Second, the causes of the formation of earnings management

Earnings management is not a simple accounting problems, it and the internal management structure and external supervision of the institutional defects existing in the closely related. Of course, the reason is not reasonable or internal power to arrange the results. Through the research of earnings management, can identify the company management structure of the existing institutional defects, find the root causes of earnings management behavior. So, can be either for related laws and regulations construction to provide the theory basis, and to the investors or other stakeholders evaluation company level of management to provide theoretical guidance. Next, we analyzed the specific reason for the formation of earnings management.

The reason: the principal-agent relationship morality to deviate from. Modern enterprise theory, the enterprise is a series of incomplete contract organic combination, it is trade between people a way of property rights. In a series of contracts in combination, shareholders and managers usually adopt the "principal-agent" relations, and between the principal and agent interest orientation are often not consistent, existing responsibility, right and interest of the aspects of contradiction. First, the principal goal orientation is investment income or profit maximization, and general agent pursue their own utility maximization, not working to increase the value of the firm. Managers in order to avoid enterprise at high speed development appear stalled after endanger their status and interests of, to the enterprise often take the development strategy for slow to stabilize your status and performance. That is to say, only when the profit maximization and managers not inconsistent with the interests, they will pursue investment income or profit maximization; Otherwise, will each take the benefit. Therefore, principal-agent system, the management of easy to have the moral deviation, may provide for earnings management.

Reason 2: the contract between the parties information asymmetry. In the modern enterprise, between the principal and agent often information asymmetry. Agent many course of business information monopoly, and the client to get these information, they tend to pay a high price, and sometimes even can't get the information. This makes the principal-agent relationship incentive and restraint mechanisms are incompatible, agents can use this information for a kind of the rent, the client are concerned, is the agency cost. Also, the external users of accounting information is difficult to obtain exclusive information within the enterprise. Because agents (enterprise managers) holds the information of manufacturing and FaBuQuan, for the benefit of their own, to the accounting information will hide or exaggerated. Therefore, it is also not to the principal may to accounting information provided by an enterprise of authenticity, reliability and adequacy of evaluation, makes the modern enterprise surplus management possible.

Three reasons: accounting standards and the defects of the system itself. The limitation of the management accounting inherent to the authorities by earnings management, provides the operating space. Different enterprise circumstances vary, the economic environment is complex, and the accounting standards and the system could not make out perfect, there must be accounting choice. Such as accounting required in the accrual, conservatism principle, in accounting recognition process will inevitably infiltration professional judgment and many other subjective human element, management authorities also may through manipulation accrued items, or loss to confirm the virtual performance or "storage profit". Because the government can only just general accounting norms namely general accounting standards make a provision, and the accounting policy provides no special status, he offers businesses the space of accounting choices, become a public company listed on the soil of earnings management.

Three, surplus management role

Scholars at home and abroad to earnings management view to basically have two kinds: one is that surplus management is a fraud, equal to profit operation and financial fraud, it is listed companies as a specific purpose on the behavior of the manipulation of surplus, not limit in the generally accepted accounting principles or accounting methods inside; The other is that surplus management is not a fraud, produced by the financial report it although lacking authenticity but not fraudulent financial report. Earnings management just destroyed surplus the fairness of the data, not destroy its factual, because of it of matters and trading is actually occurred, is not fiction. At the same time, the surplus management is not, as financial fraud that to related parties harmful without the only, although it reduced the authenticity of the financial statements, but in reducing the cost of tax planning, contract, rational configuration of social resources exist certain positive role.

The positive role of earnings management is concerned, is help enterprise through a temporary financial crisis. When the enterprise is in operation difficulty, and needed investment funds, often using profits push measures before. At this time, enterprise in general is in a poor financial situation, net assets yield rate can't achieve match financing conditions; High property debt, potential creditors credit support is not willing to provide. If confirmed later ahead of enterprise profit, be like, the straight-line method with accelerated depreciation, reduce the proportion of the loss of bad, delayed provision for impairment of long-term investment, so, the current profits will be improved, so that the net assets yield to match demand. At the same time, these practices can raise the rate of shareholders' equity, enterprise more easily through the debt way to raise money. Such, can help enterprise have financial difficulties, causes the enterprise to have plenty of money to fund the production and business operation activities.

Two is to help enterprise to reduce the cost of contract. The contract view (EfficientContracting Perspective) scholars pointed out that surplus management can reduce the cost of contract. They think that the choice of accounting method with enterprise organization form and contracts the same form, can reduce enterprise the contract between the parties costs, promote the maximization of enterprise value.

Considering the contract is incomplete, need to give operators certain accounting selection and treatment of flexibility on, in order to cope with the enterprise environment changes and other unforeseen events. Especially in the peripheral environment changes affect the enterprise contract reference index, the enterprise management can through the proper surplus adjustments affect contract index, thus it can effectively avoid the costs or technical negotiation default cost, realize the maximization of enterprise value. Managers have certain of earnings management ability, to maintain effective contract is necessary. But, this kind of earnings management on managers must not excessive opportunism behavior, not sedulous damage related interest group the interests of the premise. That is, by earnings management, is benefit to the enterprise development.

Three is help enterprise long-term development. In production and management for the instability of the enterprise, the implementation of the profit smoothing method, can deliver to the outside a production and business operation stability of information, strengthen the confidence of investors for the enterprise, stable prices, and also help to shareholders to wealth maximization goal. Take profits back measures is increasing year by year, make enterprise performance out of "growth" trend is increasing year by year, to set up the business enterprise operating performance of the steady growth of the good image, in order to attract more investors. Enterprise if can seize the opportune time, adjust the production and business operation management, improve market share, turn "virtual growth" for "real growth", be helpful for setting up the enterprise image, the realization enterprise long-term development goals.

4 it is to achieve the goal of tax planning. Modest earnings management can help enterprise reasonable, tax avoidance and tax planning. It can not violate national tax policy, under the premise of not only reduce the tax burden on the enterprise, and at the same time and in conformity with the tax law contains the policy guidance. For enterprise, for example, it is a good choice.

The negative part of earnings management is concerned, although earnings management in the domestic and foreign enterprises are to be used extensively, but, when earnings management more than a reasonable degree, can make the accounting information lost fair sex, reliability and comparability, thus misleading information user, affect the market resources optimization allocation function, undermine social economic development. Excessive the disadvantages of earnings management mainly displays in the following respects.

1, reducing the financial statements the reliability of the information. When earnings management more than reasonable limit, it is easy to change for profit manipulation, making accounting information lose relevance and reliability. And the correlation and reliability is the two fundamental accounting information quality characteristics. Among them, the reliability is a foundation, left the reliability, accounting and lost vitality. Earnings information is the most important accounting information, it is investors, creditors and external information users to evaluate the character of the enterprise is significant. Excessive surplus management make statements of the earnings of information become Numbers game, seriously will reduce the quality of accounting information, the reliability of the information lost financial statements.

2, to enterprise's development has some of the risk. Earnings management to a certain extent though can maintain the interests of the business operators and even enterprise, but also put in bigger risk. In fact, many enterprise surplus management motivation did not give due consideration to the future development of the enterprise, and just as an expedient sight. The company through the earnings management current profit increase, will make the expected goals profits becomes more and more big. If no improving enterprise production and management activities, the next year if not reach the expected goal, in order to maintain enterprise image and company managers interests, and only more forcefully by earnings management, or even making illegal profits manipulation and accounting fraud, will eventually destroy the confidence of investors for the earnings quality, leading to a fall in the value of the enterprise market. The Shanghai securities news for investors a survey, and profit, earnings management in later turned back to will make investors disappointed. Performance of the company is not beautiful, will lead a stock value negative effects such as the downturn.

Three, the local interest to damage the interests of the whole. Due to the economic interests of the enterprise management and investors, creditors and the national interest in consistency, usually, earnings management to improve the management level of enterprises, but can't ignore management authorities in order to maintain their own economic interests and damage the investors, creditors and the country's economic interests of the facts. Excessive use of earnings management, because the local interest will damage the interests of the whole. At present, the U.S. subprime mortgage crisis, the emergence of China's financial market stability, looked up, and each enterprise by earnings management means too also have particular concern. If because every enterprise in order to its own interests, not controlled on earnings management, then, standing in the whole society's point of view, the consequences is unimaginable.