Comprehensive Income Information And Earnings Management In China

The fluctuation of the comprehensive income, which reflects the asset-liability view and decision-making availability, is tortuously developing in China’s application. However, under the influences of global capital, market and the international convergence of quality of accounting information, the comprehensive income is still developing in a screw type in our country. After joining in the WTO, participating in international competition and sharing its market, the convergence of International Accounting Standards has become a necessity for China. In November,2005, the declaration of "International convergence of accounting standards and bilateral cooperation joint statement" was assigned by China’s Ministry of Finance and EU committee. On February25,2006, China’s Ministry of Finance issued a new criterion for companies’ accounting, first introducing the idea of comprehensive income and the fair value measurement, which began to popularize and implement in listed companies and nearly all large and medium-sized enterprises. In2006, the financial statement first introduced the concept of gain and loses by the new accounting standards, which served to reflect the flow or outflow of the economic interest gained by the non-daily, possibly increasing and non-invested capital of enterprises. Introduction of gain and loses represents the change from traditional income to composite. But the breaking out of the financial crisis in2008has made the whole economic world, centered by the Wall Street, suffer from so many criticisms. Because of so much pressure, FASB an IASB has lessened the need of impairment of assets and reclassification of financial assets, causing a suspect on the use of fair value. Influenced by International Accounting Standards Board, China adopted a cautious attitude towards the use of fair value in a strict way, once causing stagnancy in the comprehensive income development embodied the thought of asset-liability view. However, every sword has two sides. The breaking out of financial crisis has urged G20and FSB to set up a united standard for high-quality accounting. As an important member of G20and FSB, China has fully followed and participated in this way with its publications of "Accounting standards for enterprises no.3explain" Accounting [2009]8documents and Accounting [2009]16document in2009, calling for an addition in composite and other income items, which were also be described in detail in the annotation of financial statements. The publication of Accounting standards for enterprises no.3explain" Accounting [2009]8documents and Accounting [2009]16document has first entered the scope of China’s financial statements in an independent status. Some foreign documents point out that the comprehensive income reflects the articulation of balance sheet and profit statement reveals some by-passing items of balance sheet and tries to reduce the managing space of surplus of an enterprise effectively. At the same time, it will point out that disclosure format of other comprehensive income will also influence the earnings management of enterprises. The publication of comprehensive income in a single profit statement will be more effective in controlling the management of surplus of enterprises than in the change of owner’s equity. With the publication of new accounting standards, some scholars have proved that comprehensive income has informational and relevant value with China’s listed companies as the researching object. So under the circumstances of special condition and accounting, what’s the function of the management for the surplus by comprehensive income information? Is it able to control as well as create a better one with the disclosure format?Based on the above mentioned, this paper will adopt the way combined with criteria and examples, qualities and quantities. First, it will focus on the current situation and problem of comprehensive income with interest’s Of986listed companies of Shenzhen and Shanghai Stock Market in2010. And then it will use the cross-session date of A-shared listed companies of Shenzhen Stock Market from2007-2010to prove the managing influence, search the function and put forward some problems. Simultaneously, it will cite some foreign experience and suggestions in revealing quality and management as the proof of the paper’s main conclusion.Specifically, this paper is divided into six parts:Ⅰ. Introduction. This part mainly discusses the background, significance, methods and train of thought of this paper. The structure and framework are illustrated by graphs and possible innovations are discussed in this part as well.Ⅱ. Literature Review of both abroad and domestic studies on comprehensive income information and earning management. According to the route that dividing the literature review into information disclosure and earning management as well as comprehensive income and earning management, this part summarizes and comments the existing differences on clues, methods, substances, conclusions, etc. of the existing literatures.Ⅲ. The theoretical analysis. This chapter lays the theoretical foundation for assumptions. Therefore, it gives a brief review of the comprehensive income theory, earning management theory and other theories (including Asset-liability View and information asymmetry). What’s more, this part also discusses the relation of comprehensive and earning management.Ⅳ. Present situation analysis. This chapter mainly analyzes the present situation and matters of comprehensive income information disclosure with986listed companies of Shenzhen and Shanghai Stock Market on April31,2010. because the comprehensive income is a new thing and is asked to disclose not long, this chapter elaborates the comprehensive income information disclosure’s present situation and problems.Ⅴ. Empirical Analysis. This chapter includes hypothesis making, sample selection, models introduction, variables design and results analysis. Specifically, this research collects1456listed companies from2007to2010which are all A-shared listed companies of Shenzhen Stock Market, studying the affection of comprehensive income information to earning management. The results are that the two have negative correlation with each other and the more transparent disclosure format is, the more suppressive the comprehensive income information are to earning management.Ⅵ. Policy recommendations and research prospect. To summarize the whole paper, this chapter gives some exhaustive suggestions about how to improve comprehensive income’s development and how to use comprehensive income’s information to restrain the earning management in our country, and proposing the follow-up research forecast and probable research areas.The main conclusions are:(1) The total contents of comprehensive income relate to earning management. The more the total is, the activer the earning management will be.(2) The total contents of other comprehensive income’s information are able to influence the surplus management. The more the total is, the bigger the controlling function will be.(3) The composite information in a single statement will be more effective in controlling the surplus management than in the change of owner’s equity.(4) The comprehensive income represents the asset-liability view and the articulation between balance sheet and profit statement, effectively lessening the falsities between gains and loses, and also fair value changes of Financial Assets.Creations in this paper are the following four items. First, it will do research on the influence in a theoretical and factual angle, enriching the researching contents of China’s Comprehensive Income and filling the blank on such related topic. Second, it will show us the value in the promotion from the surplus managing angle, providing data support for promoting the international convergence of Financial Accounting Standards. Third, it will do analysis on the features of listed companies for a better understanding of present application situation of our comprehensive income.Shortages in this paper are the following two items. First, it’s the reliability of data. Second is the unidirectional research direction. More specifically, in terms of reliability of data, the resource of this paper’s data is mainly from CSMAR data library, but CSMAR have the problem of loss and error. What’s more, the requisite data of financial statement lapse as well. The unidirectional research direction means this paper mainly research the comprehensive income’s influence on earning management, n’t researching the earning management’s influence on comprehensive income.