Empirical Research On Accounting Estimates Of Listed Company

This paper is based on the studies upon the A-share companies that have changed their accounting estimates in the annual reports issued during 2001–2004. With considering of the under-reforming economical background of China and its unique capital market system, the following aspects were studied of the companies that have changed their accounting estimates: 1. Earnings management; 2. Motivations of the changes in accounting estimates; 3. Response of the market to the change in accounting estimates; 4. Altitude of the CPAs on the inappropriate accounting estimates discovered in the change of accounting estimates.The studies suggests: Change in accounting estimates items are highly concentrated on providing of bad debt provisions over account receivable. Companies who changed their accounting estimates were depending on the non-recurring gains to support their profit of the current year and next year, which are less in consistency. It is obvious that the companies which is involved in inappropriate accounting estimates were doing earnings management with adopting of discretionary accruals items and below-the-line items. As of the motivation of change, the higher in liability over asset, the more possibly happen. Changing of CPA usually suggests change in accounting estimates.Whenever the companies'performance are in extreme situations, such as"unrecoverable loss"or"excellent performance", the stronger in motivation of changing the accounting estimates. The responses of market to the changing of accounting estimates are supporting the mechanicalness hypothesis, namely the market is systematically influenced by the process of accounting estimates changing. In the auditing process of the accounting estimates changing, Chinese CPAs were showing certain independency when inappropriate accounting estimates were encountered, though they are obviously influenced by the scale of the clients. In the current year and the next, the inappropriate estimates were usually detected by the CPAs and reflected in the auditors'report. Number of items involved in accounting estimates, proportion of the above-the-line estimates amount over the entire estimates amount, scale of the client, and scale of the CPA are suggesting significant power of interpretation on the issuing of non-standard opinions.Upon the discoveries introduced by the empirical studies, the article provided initial suggestions on how to restrain abusing of accounting estimates in the listed companies to manipulate the profits.