R & D Expenditure Accounting Policy Choice And Earnings Management

The implementation of New Accounting Standard issued in the year of 2006 clearly indicates that research activities can be divided into research phrase and development phrase. R&D expenditure in research phrase completes in treatment as expenditure. R&D expenditure in development phrase carries out conditional capitalization treatment in which qualified R&D expenditure can be recognized as intangible assets on the balance sheet. When the conditions of recognition for R&D expenditure accounting policies are too dependent on subjective judgment of accounting personnel, when the business has limited disclose information about independent R&D expenditure, both lead to supervisory departments lack a basic knowledge of relevant information about R&D activities of enterprises which causes regulatory difficulties. Therefore, this thesis will detail the theme through literature research method and case analysis method. In the field of case analysis, the thesis will investigate Chong Tong and identify business motives that can through accounting policies of R&D expenditure to select execute earnings management through experience recognition method of earnings management. Afterward the author will analyze the market how to react when the company has executed earnings management.Researches show that the motives of earnings management is greatly strong for software industry that has widespread problems of technology and capital. Not clear boundary between research phrase and development phrase or not detailed disclosure of R&D expenditure can serve as a tool that enterprises select to execute earnings management by means of accounting policies of R&D expenditure. Earnings management leads to accounting information distortion that greatly affects capital market order. To strengthen supervision departments of enterprises, the thesis has proposed various ways to stop business executing earnings management through R&D activities and offered the reference opinions for continuing improvement of New Accounting Standard.