Study On The New Assets Impairment Standards' Effect To The Earnings Management

In order to implement prudence principle and make the balance sheet reflect the actual finance status, the regulations which were issued by Ministry of Finance in 2001 required that enterprise should do provision for impairment of Assets. This requirement made enterprise set up the concept of asset impairment. However, this regulation had dual effects on the accounting information. On one side, it can reflect the status of operation and finance more accurately; on the other side, it can become a tool of earnings management. In order to prevent from arbitrarily taking advantage of it as a means of manipulating earnings, the Ministry of Finance issued the new Accounting System in February 2006, which included 1 basic item and 38 specific items. The new policy was enforced in the listing companies, while other companies were encouraged to implement. In the new accounting system, it stated that"once the assets impairment is confirmed, it can not be reversed later". This rule was different from both International Accounting System and China previous Accounting System. Whether this regulation does work on the prevention of current earnings management and whether the modes of earnings management can be changed after implementing this new regulation have been the hot topic in both the accounting theory and accounting practice field.This thesis based on financial data extracted from listing companies of Information Technology Industry, make use of several demonstration methods to study the impact of new accounting system on the impairments of assets of these listing companies. The thesis includes 5 chapters. The first chapter is introduction; it mainly introduces the background, significance, research status, methods, content and innovation. The second chapter introduces the theories of assets impairment and earnings management; theoretically discuss the impact of new accounting system on the earnings management. The third chapter confirms that the assets impairment are broadly used in listing companies by the use of statistical analysis, and initially makes conclude that the impact of the new policy is not distinct. The forth chapter is through the statistics and demonstration analysis on the impairment of assets before and after the new accounting system, the conclusions are derived as follows: the impact of the new Asset Impairment System is not outstanding, and the modes of earnings management haven't been changed. In the fifth chapter, some recommendations are provided.