Research On The Influence On Earnings Management Of The Reform Of Income Statement

After listed companies were required to present the other comprehensive income(OCI)and comprehensive income in earnings statement by the regulation of Statement of Financial Accounting Standards(SFAS)and International Accounting Standards(IAS),important reform was also made to income statement in 2009 by Chinese finance ministry to realize the continuous convergence of International Financial Reporting Standards(IFRS).It was stipulated firstly in Accounting Standards for Enterprises Interpretation No.3 that Chinese listed enterprises should add OCI and comprehensive income in their income statements.Even though the information of OCI was disclosed by part of listed companies in China after the reformation,however,there still exist many problems.And these problems were not paid enough attention to by the auditors and the regulators for they did not take proper actions to lead listed companies to present OCI in their income statements correctly.More detailed regulations and instructions were promulgated on OCI in new accounting standards until 2014 and there is still some unclear expression.Because the measurement of OCI is based on the fair value and the change of this item was always hidden in the statement of stockholders equity,the adjusting of other comprehensive income is likely to become a way to manage the earnings for an enterprise.It is always a key issue for standard-setters on how to restrain the earnings management behavior of enterprise managers.And enhancing financial transparency by urging enterprises to correctly report other comprehensive income may become an effective method to improve this problem.In order to emphasize the need for other comprehensive income reporting to attract more attention of standard-setters,managers and other financial statement users and help them gain more experiences in standards setting,statement making and report reading,empirical researches are conducted to prove the positive influence of presentation and disclosure of OCI on restraining the behavior of earnings management.This paper describes and analyzes the OCI reporting status during 2009 to 2016 of all A-share listed companies from the view of different years and different industries so that we can have a primary understanding about the implementation of the new policy on income statement making after the reform.And then this paper systematically analyzes the factors that encourage or restrain enterprise earnings management and the way to influence the degree of enterprise earnings management by OCI.Taking the reformation of the profit statement in 2009 as an opportunity,this paper uses the difference-in-difference method,which is widely used in policy study,to prove the influence of reporting OCI in the income statement on the entire level of listed enterprises surplus management on the basement of the above analysis,selecting the sample data of 892 listed companies in Shanghai and Shenzhen stock market from 2007 to 2015.The results show that there exists statistically significant correlation between the reporting of OCI and the inhibition to the earnings management behavior of listed companies in China,but the effect is not obvious.This situation may be caused by the neglect of the presentation and disclosure of OCI by regulators,auditors and listed companies’ managers considering that there are many problems in the reporting of OCI and managers and regulators take few actions to improve this situation.In order to solve these problems,the suggestions are listed as follows:(1)For standards-setters,they should improve the policy of mandatory disclosure of OCI and the relative details,provide the training and guidance on the other comprehensive income and comprehensive income and enhance the understanding and processing capabilities of financial statement users on other comprehensive income information.(2)In order to recognize the earnings management behavior of a certain enterprise through OCI,the OCI item should be taken into audit scope by auditors.The performance appraisal plan and compensation contract need to be adjusted to balance the weight of net profit indicator and other indicators like share prices and comprehensive income in performance appraisal by an enterprise.