Research On The Accounting Policy Choice Of Chinese Listed Companies In Terms Of The New Accounting Standards

The goal of financial Accounting is to provide accounting information users outside with decision-making information. To achieve this goal, it requires choosing the relevant accounting policy to do the accounting treatment. The operation of accounting is actually the process of accounting policy choice, since the choice of enterprise accounting policy go throughout the enterprise from accounting recognition, measurement, recording to reporting in the entire accounting process. The different accounting policies choice results in different accounting information and leads to different interests distribution and decision-making behavior of stakeholder, also affects the efficiency and the result of the allocation of social resources. The accounting policy is the basis of accounting information and will produce a wide range of social and economic consequences; it is a matter of socio-economic development plans. Therefore, this paper will focus on the accounting policy choice and its problems.Although the research of accounting policy choice in the west starts earlier and get much academic achievement, there are challenges and unsolved problems at the same time. For instance, there is no consistent understanding of the purpose and the economic consequences of accounting policy choice; there is no uniform conclusion of pricing differences resulting from different accounting policy choices; it is difficult to design a model of accounting policy choice accurately and etc. In recent years, the research of accounting policy choice is a new topic in China. With the development and innovation of Chinese corporation, security market and accounting principles, companies are more active in choosing accounting policy; but lack of strong and effective external supervision meanwhile the internal opportunism exists in the company which leads to earnings management and manipulating profit for high frequency. Thus, study of accounting policy choice especially how to restrict the choice becomes increasingly important.On February 15th 2006, the Chinese Ministry of Finance issued the new accounting principles consisted of one basic and thirty-eight specific accounting principles that listed companies should carry into execution on January 1st,2007 and unlisted companies are encouraged to join in. Since accounting policy choice plays as the main method and tool to advance the accounting standards system, its economic consequences and how to supervise and constraint the choice has attracted the attention from the whole society. This paper studies the accounting policy choice in both theory and practice, utilizing the latest data to build the empirical model which forms a new system of accounting policy choice and regulates the behavior to ensure the quality of accounting information. Moreover, this paper contributes to the case study of accounting policy choice by Chinese listed companies who have their own circumstance and problems but also similarity compared with other countries.The paper is organized in the following manner.Section 1 is the instruction. Certain accounting terms, such as accounting policy choice, are emphasized in this section to help understanding the paper. This section also presents the structure of the paper, the methodology employed and the value of this research in both theory and practice.Section 2 reviews the overall development of accounting policy and literature on accounting policy choice in previous and recent years, especially the new academic works at home and aboard. The further direction of research and the possible area to deepen the topic are presented by the imperfection of recent research of accounting policy choice under the Accounting principles 2006 In this paper several aspects of the accounting policy choice of listed companies are described in brief, for instance, the new characteristics of the accounting policy choice of listed companies, the influence and outcome of executing Accounting Principle 2006, the performance of earnings management under new accounting principles, the connection of earnings management, accounting policy and securities supervising, the restriction to accounting policy choice and etc.Section 3 elaborates the new characteristics of accounting rules choice of listed companies under the new accounting principles. On 15th, February 2006, the Chinese Ministry of Finance issues one basic and thirty-eight specific accounting principles which reform the accounting environment remarkably. This section will focus on these new characteristics and discuss certain topic such as the relationship between the accounting principles and the accounting policy choice, the outcome under conducting different policy choice, the overall characteristics, the disadvantages and improvement of Chinese listed companies'accounting policy choice. Section 4 discusses the relationship of accounting policy choice and accounting rent-seeking, and then further discusses the influence of the new accounting principles on accounting rent-seeking. Considering the accounting principles issued in 2007 makes a great impact on accounting rent-seeking, the analysis to the relationship between them and the further application of rent-seeking is meaningful in research. In this section, ways to help restricting accounting principles are also proposed in details.Section 5 presents the theory of accounting policy choice and analyses the empirical results of the research. There are two parts in this section:Firstly, empirical study on the model of earnings management is done to verify that whether listed companies choose earning management under new accounting principles and applied the principles to what extent. Secondly, with respect to three main changes of principle of debt restructuring which are in 1998,2001 and 2006 separately, LOGIT regression model is utilized to analyze the impact of the evolution of principles of debt restructuring and securities supervising, also the connection of earnings management, accounting principles and principle of supervising. It finds that companies which have debt restructuring do choose the earnings management and presents efficient ways of restricting earnings management choice.Section 6 concludes and presents several approaches to standardize the accounting policy choice Recently how to suppress the opportunism and to improve the efficiency of accounting policy choice has been paid much attention in both home and aboard financial market. In China, when listed companies choose accounting policy, they are on condition that there is less powerful external restriction and supervisal, and internal motivation of opportunism. Since it is essential to standardize the accounting policy choice, this section proposes approaches to restrict choosing accounting policy from different aspects by applying the accounting ethics theory, internal and external corporate government which offer the difference and complement to standardization.To sum up, applying the theory of institutional economics, modern enterprise theory and the financial innovation theory, this paper utilizes the sample of financial reports of Chinese listed companies during the period of 1999-2008. to compare with international financial report and analyzes problems caused by different accounting policy choice. It mainly discusses that after new accounting principles issued, new characteristics of listed companies'accounting policy choice and its influence to accounting rent-seeking and earnings management. Moreover, the case study of accounting policy choice in principle of fair value contributes to further the direction of research and deepen the topic in possible area.