Research On Income Transparency And Earnings Management

In 2006, as the publication of new accounting standards, a milestone of China's accounting theoretical and practical development was set. However, there were some disadvantages coming along with the great evolution. First of all, fair value measurement was introduced to China, which brought both harms and goods. On one hand, using fair value is the choice of accounting system's objective and international convergence. From the theoretical point of view, using fair value can reflect the changing enterprise market value, improve the relevance and quality of accounting information and help the audience to make the right decisions. But also it makes convenience for earnings management. On the other hand, new accounting standards broaden the range of accountants'evaluation and estimation, which, to a certain extent, make earnings management possible.One extraordinary change of new accounting standards is that it introduced asset-liability view and comprehensive income view, which was a remarkable moment since it's the result of accounting international convergence. When it comes to income and earnings, new accounting standards attached importance to asset-liability view rather than revenue-expense view. The concepts of gains and losses were officially brought in. Now, income refers to the increase of assets or the decrease of liabilities, while expense refers to the decrease of assets or the increase of liabilities. As a result, revenue can be acquired by observing the change of shareholders'equity. It not only includes realized earnings, but also unrealized earnings. The purpose of asset-liability view is to achieve the market value of assets and liabilities, even the whole enterprise by regularly estimation and valuation.As the image of enterprises, earnings are under spotlight. Income transparency can reduce the information asymmetry between information audience and enterprises efficiently. Being the supplement for revenue and expense, the introduction of gains and losses breaks through the traditional theoretical constraint, as well as makes a great effort to turn to comprehensive income view by bracing unrealized income into financial statement. According to new accounting standards, other comprehensive income should be listed in income statement, which can enhance accounting transparency significantly. However, the effects of adopting this policy remain to be further studied.This paper using accounting income as a breakthrough point put forward the definition and criteria of income transparency on the basis of economic income view, asset-liability view, comprehensive income view and other theory. This paper used amendatory Jones model to investigate the relationship between growing accounting transparency and earnings management of listed companies.This paper was divided into five chapters as follows:ChapterⅠis the introduction of the research background, the purpose and significance of the study, the structure and technique of this article, as well as the contribute and the weak points.ChapterⅡis literature review. This paper reviewed some classic research on earnings management, comprehensive income and transparency, then forming a conclusion of my own.ChapterⅢis the theoretical bases. First of all, the current situation of Chinese listed companies'earnings management was described. After comparing economic income view, asset-liability view, comprehensive income view and other theory, they were defined. After theoretical analysis, this paper supported that enhancing accounting transparency is negative to earnings management.ChapterⅣis the empirical analysis. This paper selected Shenzhen A-shared listed companies as the research sample. Through descriptive statistics and regression analysis, some empirical results can be got:First of all, the more profit a company makes, the better chance existing earnings management.Secondly, compared to list in statement of changes in equity, other comprehensive income which is listed in income statement has more negative effect on earnings management.Last but not least, the grade of information disclosure made by SZSE is positively related to earnings management.ChapterⅤis the conclusions and suggestions. After outlining the basic conclusions, this chapter listed some recommendations for improving income transparency and comprehensive income reporting, such as setting the specific standards for comprehensive income reporting and so on.The major contribution of this paper is:(1) this paper put forward the idea that accounting transparency should be considered not only from the view of income, but also the view of disclosure. (2) this paper improved the empirical model of correlation between income transparency and earnings management.However, due to the lack of knowledge and the constraint of objective conditions, there are still some weak points:(1) the research sample for investigating assumptions was kind of small, since ignoring Shanghai A-shared listed companies, aiming to obtain the data of the grade of information disclosure made by SZSE. (2) this paper may be inconsiderate about the influencing factors of the degree of earnings management. Hope that subsequent research can improve on.