Accounting Policy Choice Of Financial Assets' Classification And Corporate Earnings Management

Financial instrument accounting is not only a hot research field of accounting academics, but also one of international accounting problems. In December 2006, it was the fifth anniversary of China's accession to WTO, which indicated that China's financial market was fully open to the world. A comprehensive and sound financial instruments accounting standards has become a mission with the completion of the fundamental system.On February 15,2006,the Ministry of Finance issued a new "Enterprise Accounting Standards",including four criteria of financial instruments:"Accounting Standards for Enterprises No.22-Financial Instruments Recognition and Measurement","Accounting Standards for Enterprises No.23-Transfer of Financial Assets","Accounting Standards for Enterprises No.24-Hedging"and" Accounting Standards for Enterprises No.37-Report of Financial Instruments".CAS22 standardizes financial assets and financial liabilities, the classification of financial instruments, the initial recognition, measurement and follow-up the recognition, measurement issues, and impairment of financial assets and other issues;CAS23 standardizes the transfer of financial assets, recognition and measurement problems.CAS24 standardizes the definition of hedging, and hedging operations are grouped into the fair value hedge, cash flow hedge and hedge net investment in foreign operations such as three kinds of, standardizes their different recognition and measurement methods. CAS37 includes general principles, financial instruments and financial instruments listed in the disclosure of three aspects.In the CAS22,the financial assets are clearly classified into four categories:â‘ at fair value through profit and loss changes included in the current period's financial assets, including trading financial assets and transactions designated as at fair value through profit and loss changes included in the current period's financial assets;â‘¡held-to-maturity investments;â‘¢loans and receivables;â‘£available for sale financial assets.The follow-up measures of trading financial assets and financial assets available for sale have adopted fair value. But because of accounting differences, enterprises have a significant difference in the impact of net profit.Plus,there is no clear line for trading financial assets and financial assets available for sale on the confusion in the demarcation, the listed company's management has a large free choice in the division of these two types of financial assets.Therefore, I believe that during the management of financial assets in the division, the choice of financial assets classified as trading or available for sale financial assets can be regarded as two kinds of accounting policies, both the accounting policies would be selected to engage in earnings management.The major study of this paper is the issue that management uses the randomness of the two types of accounting policy choice to conduct earnings management after the implementation of the new accounting standards.The paper consists of the following six chapters:Chapter one, Introduction. This chapter introduces the background of this research, the purpose and significance, research ideas, and structural framework.Chapter two, Literature Review. This chapter reviews the earnings management and accounting policy choices and their research results of the relationship between the both sides. Through literature review and comments, is not difficult to arrive at the choice of accounting policies between earnings management and indeed there was a correlation, but such studies focused on impairment of assets of the impact of earnings management, while the use of other accounting policies the choice to carry out studies of earnings management literature seldom.Need to focus on is that after the introduction of the new guidelines on the classification of financial assets, accounting policy choice and earnings management related to the research of the empirical literature is still in a blank state, so this based on the research direction of this article.Chapter three,Choice of Accounting Policies and Earnings Management in General and Theoretical Analysis.This chapter focuses on principal-agent theory, asymmetric information theory, contract theory and stakeholder theory, through the analysis of these general theories and earnings management and accounting policy choices of the relationship, trying to find out the theoretical origin of business management authorities to use fiscal policy options to conduct earnings management theoretical origin.Chapter four, Accounting Policies of Two Types of Financial Assets, and Their Earnings Management Analysis. This chapter plays the linking role in the paper. This chapter focuses on the difference of accounting treatment between the trading financial assets and financial assets available for sale.Because of the vagueness of the criteria for the distinction,there is the randomness of the two types of accounting policy choice to conduct earnings management for enterprises.Chapter five, the Empirical Study of Earnings Management and the Accounting Policy Choices of Two Types of Financial Assets. In this chapter, first of all, four hypothesis are proposed based on the analysis presented in this paper studies. Secondly, this paper selects the 2007 annual reports of 550 listed company data, using descriptive statistical analysis and independent samples T test method to conduct empirical study.Chapter six, Research Findings,Policy Recommendations and Limitations. This chapter summarizes the conclusions of empirical test and finds that listed companies are more inclined to stocks at fair value measurement of financial assets available for sale financial assets included in accounts as to earnings management. So in inhibiting the use of two types of financial assets of listed companies, targeted policy recommendations are suggested. Finally, this paper analyzes the limitations.The main contributions of this paper are as follows:First, the topic of this paper has a strong theoretical and practical significance. In CAS22, the qualification of available for sale financial assets is not clear, together with the criteria is not clear, listed companies may be using the new accounting standards'ambiguity to conduct earnings management behavior. I hope that this paper will play the reference role in the future revisions of accounting standards.Second, the paper verifies the existence of the listed companies do use the accounting selection of available for sale financial assets and trading assets to conduct earnings management by using empirical research methods and independent samples T test.This paper provides some ideas for future study.