Research On Earnings Management Using Goodwill Impairment

Enterprise Accounting Standards changed the method of subsequent measurement of goodwill from amortization method to impairment test method,the original intention is to enable investors in the capital market to obtain more timely and fairer goodwill information.The impairment test method requires companies to perform an impairment test on goodwill at least at the end of each year.The original intention of introducing this method is to truly reflect the fair value of goodwill and provide investors in the capital market with timely and effective information.However,judging from the actual operation of listed companies,in the process of impairment testing,companies often lean towards extreme operations.For example,after the impairment of goodwill,due to performance considerations,it is often concealed first,and when it can't be concealed,it will be washed out all at once in a "big shower" method.This extreme operation method will cause great distortion to the company's actual financial performance,and the huge amount of goodwill impairment has become a performance black hole for listed companies.Losing stocks hit a record high in 2018,half of which was due to the impairment of goodwill eroding the profits of listed companies.Are these huge goodwill impairments justified?What are the bad motivations behind it?What is the impact of this on the company itself and the capital market? What's the limits and measurement methods of current goodwill? These are all issues worth thinking about.This article adopts a combination of theoretical research and case study.In the theoretical part,based on a review of domestic and foreign research literature,this article mainly analyzes the institutional background and development of goodwill impairment,the related theoretical basis of goodwill impairment,the motivation,methods and economic consequences of corporate earnings management.In the case part,Broad-Ocean Motor,one of the typical companies whose “performance thunder”was caused by the concentrated accrual of goodwill impairment,was selected.First of all,the process of its acquisition of Shanghai Edrive Power through its high-premium and high-performance commitments and the subsequent process of accruing impairment of the goodwill generated by the acquisition has reviewed.Subsequently,using the overall accrued profit model and the mean recovery model,Oceanian'searnings management was tested.The research showed that Oceanian had positive earnings management in 2015-2017 and huge negative earnings management in 2018.On this basis,the study found that the motivation of Broad-Ocean Motor Corporation's earnings management is mainly to “take a big shower” on the balance sheet and provide opportunities for major shareholders to reduce their holdings.Broad-Ocean Motor's method of earnings management is to understate the impairment of goodwill in the previous period,and to accumulate impairment in a large one-time amount.The flexibility of accounting standards,the failure of external supervision,the decision-making power of insiders,and the ability of investors to predict the risk of goodwill impairment provide opportunities for companies to do earnings management.Broad-Ocean Motor's earnings management behavior makes the company's financial situation worrying and seriously harms the interests of small and medium investors.In response to the above conclusions,this article has the following suggestions:In terms of standards,this article proposes to form a special goodwill accounting standard,remove goodwill from profits,classify it as owner's equity,and include impairment of goodwill in “other comprehensive income”.The information disclosure of goodwill shall include detailed calculation process and calculation basis,and shall be disclosed in time if there are signs of impairment.In terms of subsequent measurement,it is recommended to introduce goodwill amortization,using a combination of goodwill impairment and goodwill amortization.Finally,relevant suggestions were made in improving the relevant systems for protecting the interests of small and medium shareholders,strengthening external supervision,and strengthening investor education.