Earnings Management Of Listed Companies And Freedom Of Accounting Standards

Earnings management is an act in which the enterprise's manager deliberately adopts a multiplicity of methods to achieve anticipated report earnings on the precondition of compliance with accounting standards. Earnings management is an important subject in the studies of accounting theories. Previous studies have largely been limited to "what" (concept), "why" (motive) and "how"(methodology). By taking into account the latest phenomena, in which assets impairment become a tool for enterprise's earnings management, this paper call the selected space which accounting standards entitle enterprise's manager freedom of accounting standards, and swifts its attention to the space of earnings management restricted by accounting standards.Assets impairment has more space of accounting professional judgement, the freedom of assets impairment policy has been applied by earnings management. From time sequencing, the reform of assets impairment policy in China induces obvious change of freedom of accounting standards. While different impaired item has the difference of freedom in some time.This paper uses the influence which assets or items impairment act on net profit analysis the probability of earnings management. We conclude that the freedom of accounting standards accelerates the phenomena of earnings management. On the basis of this anwser, this paper analyzes empirically the relationship between the freedom of different impaired items and the degree of earnings management. We estimate the degree of earnings management by special accrual model. And check the difference which different item leads to the degree of earnings management by Friedman test and Wilcoxon signed ranks test. The empirical study finds the same result as preamble.Therefore, the relationship between accounting standards and earnings management is controlled by the freedom of accounting standards. The rate and degree of earnings management goes distinctly up when accounting standards endow enterprise more options. By contrary, it goes distinctly down when accounting standards endow enterprise less options. On the basis of the result, this paper puts forwards some policy suggestion for accounting standards setting, and hope that it's helpful for improving accounting standards.