The Analysis Of Warranty Reserve And Contingent Liability, Information Signal And Earnings Management

With the establishment and improvement of China’s socialist market economy,manufactures face the increasingly fierce market competition. In today’s corporatemanagement, quality management is a very important management technology; it has animportant impact on the pursuit of economic efficiency of enterprises. China’s enterprisesused total quality management since the early1980s; the theory and practice of qualitymanagement have been developed. With China’s accession to the WTO, the characteristics ofthe information and knowledge-based economy age is increasingly evident, and overallstrengthening of quality management has become the reality need of operations. For example,in order to base on the market, expand market, and access to development, enterprisesincrease product quality assurance and after-sales service commitment. If products sale withina certain period, the products are damaged, failure, not caused by improper, they are availablefor free repair or replacement. Under the Accounting Standards for Enterprises, the productquality is Contingent liabilities, that this constitute is a liability to fulfill the warrantyobligations.This paper mainly studies the role of China’s manufacturing industry warranty reserve.Warranty policy as a business strategy to promote product sales, has become an increasinglyimportant strategic mechanism for manufacturers. Accrued warranty reserve. Is contingentliabilities, which provides a signal of product quality information, it can reduce theuncertainty and risk of future performance. In this paper, propose three assumptions:Hypothesis1: warranty reserve is a liability, it has a negative correlation with the value of thecompany, compare to other liabilities, and it is less negative correlation; Hypothesis2:warranty reserve include quality information and operations results, under the Signal Theoryit has a positive correlation to the performance of the company. Hypothesis3: warrantyreserve accrued estimated future claims, in the stock market it may be an understatement toadjust surplus, a listed company may engage in earnings by the product warranty costsmanagement, to achieve the desired goals. Through empirical analysis, Hypothesis has beenverified.At present, warranty reserve is rarely researched; I hope this paper can make up for thelack of this aspect. At the conclusion of the home and based on international research, this paper proposed the following two questions:(1) understand the capital markets how tointerpret the accounting information provided by warranty reserve. Specifically, we proposethe capital markets to interpret warranty reserve as an information signal or liabilities.(2)Whether company use warranty reserve as a tool for earnings management.