A Case Study On Real Earnings Management Based On Non-recurring Gains And Losses

Earnings management problems have been a hot spot in the field of accounting, evenin the field of economic concerns, because it is not only related to the interests of investors,but also may result in damage to the value of the company because the managersmanipulate. With the introduction of the Sarbanes-Oxley Act and the implementation ofnew accounting standards in our country, the space of accruals earnings manipulation isgetting smaller and smaller. Therefore, based on real earnings management activities havebeen getting more and more attention.Real earnings management activities interfere with the production and businessactivities of enterprises through real trading activities, It will not only affect theaccounting profits of the enterprise, but also have an impact on the company’s cash flow.Managers can make real earnings management by operating activities, investing activitiesand financing activities, including by the means of expand production, reducediscretionary expenses, disposal of fixed assets, related party transactions, stockrepurchase and so on.This paper focuses on the real earnings management activities of the T company.First of all, the writer analyses the motivation of real earnings management in theory,including the principal-agent theory, asymmetric information theory, game theory, Andthen the institutional context of the non-recurring gains and losses.Secondly，the writeranalyses the real earnings management behavior based on non-recurring gains and lossesof the T company, and discussed the economic consequences. What’s more, the analysisshows that real earnings management activities influence the value of the company as wellas its financial health. Last but not the least, the writer puts forward some regulatoryapproach to deal with real earnings management behavior, including the establishment ofreasonable management compensation incentives, take more comprehensive financialindicators to ensure the development of the long-term health of the enterprise.