Earnings Management Of Public Companies And Accounting For Impairment Of Assets

After more than ten years development, stock market in China has already become one of resource allocation channels. Whether the stock market can allocate resources with high efficiency and enhance macroscopic economic efficiency has already become one of important tasks for stock market construction. However, along with the development of stock market in our country, the widespread earnings management behaviors of public company have seriously affected the capital market allocation efficiency, and have damaged average investors' interest. This article summarized previous studies, and proposed that, at current stage, regardless of its motive or influence, earnings management is harmful and useless. Therefore, earnings management behavior should be regarded as opportunism behaviors, and powerful measurements should be taken to restrict it. From the view of restriction effect of accounting standard to the earnings management, this article discussed the relationship between accounting standard and earnings management, and pointed out maintaining the continuity and stability of the accounting policy and balancing the essential elasticity of accounting standard and the restriction function on earnings management will be the most difficult decision for policy makers.Based on the restriction effect of accounting standard on earnings management, this article studied asset impairment accounting policy. The functions of current asset impairment accounting policy on earnings management of public company has been analyzed by theory, case studies, and real case diagnosis analysis, and functions of the present Eight Allowance Items on earnings management has also been analyzed. This article pointed out that the system flaw of the current asset impairment accounting policy resulted it in an important method for public company to carry on earnings management. Particularly, it has played a great role in reversing losses on accounting paperwork for public company that suffered profit loss. In the Eight Allowance Items for asset, items mainly used in the earnings management are allowance for doubtful debts, allowance for inventory market value diminution, allowance for value diminution of fixed assets, allowance for long-term investment loss, and so on. Comparing Enterprise Accounting Standard 8th-Asset Impairment and its related rules newly published in February, 2006 with the current asset impairment accounting policy, this article pointed out the new asset impairment and its related accounting standards prohibit long-term asset impairment returning, stopped some channels of public company earnings management. But allowance for doubtful debts, allowance for inventory market value diminution are still allowed to return. Thus, the new asset impairment accounting standards still can possibly be used in earnings management by public company.