The Case Of Using R&D Expenditure Accounting To Earnings Management

In 2006,our country promulgated the " Company Accounting Standard No.6-Intangible assets "(hereinafter referred to as the New Accounting Standards)and put it into effect in 2007.In the new accounting standards,it mainly re-regulated the research & development expenditure,it is stipulated that the company's research &development expenditure will change from full cost to conditional capitalization.Research & development expenditure refers to all expenses incurred by the company in research & development(abbreviated R&D)activities.R&D activities are the main driving force to promote the development of technological innovation.In today's rapidly developing society,technology innovation is the key factor to improve the core competitiveness of many companies.Many scholars believe that the standards of R&D expenditure in the new accounting standards changes from expenditure to qualified capital which means companies can increase the investment of research and development activities to improve the ability of technological innovation,product market share and so on.With R&D expenditure conditional capitalization widely applied in companies as an accounting treatment,some of the drawbacks of it have been found.For example,it can be used as a new means of earnings management.Compared with foreign research,domestic research on accounting treatment of R&D expenditure is not deep enough.Most of the researches focus on the correlation between R&D expenditure accounting treatment and R&D investment,the motivations of R&D expenditure accounting treatment to make earnings management,and the theoretical discussion of deficiencies on R&D expenditure accounting treatment.However,there are few relevant case studies.In view of this,this paper,through typical case studies,analyzes reasons why companies prefer this method of earnings management,explores by what specific means the company uses the accounting treatment of R&D expenditure for earnings management and describes the accounting treatment of R&D expenditure how to impact performance.Besides,the case reveals the deficiencies of the newly issued accounting standards for R&D expenditure.On the basis of analysis,some suggestions are put forward to perfect the accounting standards of R&D expenditure,which can not only provide reference for the relevant departments to supervise the earnings management of Chinese companies using R&D expenditure accounting treatment,but also be used for reference to improve R&D expenditure accounting standards.This paper uses the method of combining theoretical research and case study to analyze the problem of earnings management by accounting treatment of R&D expenditure.In the theoretical part,on the basis of reviewing the domestic and foreign research literature,this paper mainly analyzes the research on the expense and capitalization of R&D expenditure,the motivation of earnings management,the method and economic consequence,and the motivation of accounting treatment of R&D expenditure as an earnings management method.This paper takes DaZu Laser Science and Technology Co.,Ltd.(named DaZu Laser)as an example to analyze the investment and composition of R&D expenditure in accounting treatment of R&D expenditure,and analyzes reasons,ways,objectives and earnings impact and other issues on accounting department of R&D expenditure in our country.Case studies show that:(1)the purpose of capitalizing by DaZu Laser Company is making earnings management through fabricating profits and intangible assets with R&D expenditure;(2)The purpose of earnings management by using R&D expenditure accounting is to prepare for subsequent financing.(3)This case reveals that R&D expenditure accounting standards are still flawed.Therefore,this paper summarizes the pertinent enlightenment:(1)further improve R&D expenditure accounting standards to curb the earnings management phenomenon of listed companies.(2)Establish companies' full disclosure of R&D information mandatory regulations.(3)Strengthen auditing the accounting treatment of R&D expenditure of listed companies by certified public accountants.(4)Increase penalties about using of various means by listed companies to make excessive earnings management.The contributions of this paper are as follows:(1)Combining with the real case after the implementation of the new accounting standards in our country,this paper analyzes main reasons,methods,purposes and impacts of the false increase in earnings management of companies by using the accounting treatment of R&D expenditure,which makes up for the shortage of earnings management case study on accounting treatment of R&D expenditure.(2)A detailed case analysis reveals that how listed companies use the capitalization and cost of the R&D spending for earnings management,which will provides some experience for the relevant departments of our country to implement targeted regulation on R&D expenditure accounting treatment.(3)From the perspective of typical cases,this paper reveals the defects in the accounting treatment of R&D expenditure in Chinese accounting standards,and provides a reference case for the further improvement of the accounting treatment of R&Dexpenditure in Chinese accounting standards.This paper is divided into five chapters.The first chapter is the introduction part,this chapter mainly introduces and analyzes the relevant research literature at domestic and foreign scholars on R&D expenditure,and the foreign R&D expenditure accounting rules and earnings management method,analyzes the existing problems,and then puts forward the whole frame.The second chapter mainly introduces the concept of R&D expenditure,the way of accounting treatment of R&D expenditure and the theoretical basis and mode of surplus management.Chapter three describes some information about DaZu Laser,this paper introduces the operating situation and R&D investment of DaZu Laser,analyzes the capitalization and cost of DaZu Laser R&D expenditure,and analyzes the regularity of the accounting treatment of the R&D expenditure.Chapter four analysis the motivation and influence of earnings management by capitalization of DaZu Laser R&D expenditure,this chapter mainly analyzes the way and the purpose of earnings management by accounting treatment of R&D expenditure,at the same time,from the perspective of capital structure and profitability,this paper analyzes the impact of the capitalization of R&D expenditure on surplus,and finally summarizes the problems revealed by earnings management.Chapter five is the conclusion and inspiration of the case study,at the same time,aiming at the phenomenon that domestic listed companies use R&D expenditure accounting treatment to manage earnings,the paper summarizes the corresponding restraining measures and suggestions.