Discussion On Earnings Management Behavior Of LETV By Using Deferred Income Tax

With the development of China's economy,the process of economic globalization is accelerating.In order to improve the comparability of accounting information between enterprises,it is inevitable to narrow the gap between China's accounting standards and international accounting standards.Therefore,China implemented new accounting standards on January 1,2007,the new standards are in line with international accounting standards.?The Accounting Standards for Business Enterprises No.18-Income Tax? uses the balance sheet liability method to calculate deferred income tax.This accounting concept regards the deductible temporary difference of the enterprise as the future income,and stipulates that the deferred income tax assets are recognized by the future taxable income.However,due to the limitations of the standard in terms of concept interpretation,difference identification and income tax accounting treatment,we are unable to logically determine which differences should be deferred for confirmation.For some differences that are recognized as identifiable by the standard,there is no clear accounting treatment in the actual operation,which makes the management personnel of the company obtain subjective active space in the aspects of the identification of tax differences and accounting treatment,and provides convenient conditions for enterprises to use the deferred income tax for earnings management.The use of deferred income tax for earnings management is relatively hidden and has not attracted the attention of investors,it is necessary to find and prevent such earnings management behavior.As the first listed company in China which main business is operate online video services,LETV belongs to the Internet information service industry.After the listing,the company has developed rapidly and developed a unique "LETV mode" which has a certain representativeness.However,since LETV was exposed to default on payments for goods by media,LETV began to fall into the debt quagmire.The net profit suddenly fell to a negative number in 2016,then got the ?Disclaimer of opinion? in 2017 audit report,to 2018,LETV was facing the risk of delisting,and it took only 3 years for LETV to fall from the top.The three-footed ice is not a cold day,the financial report is a reliable way for investors,creditors and other relevant parties to understand the business situation of the company,it can systematically reflect the business situation of the enterprise in a certain period of time,and LETV's financial report hides the signal of a huge business crisis.LETV's annual reports all got ?Unqualified opinion? before 2017,except the annual report in 2016 which had an emphasized field about cash flow and related transactions.However,in the 2014 and 2015 annual reports,the income tax expenses are negative while the operating income is positive,and the net profit is therefore increased.LETV has a typical use of deferred income tax for earnings management.The paper uses case studies and literature research methods.In the literature research method,the definition of earnings management and motivation,deferred income tax expense and other related basic theories are expounded,and the current status of deferred income tax recognition and distribution of listed companies is statistically analyzed.In the case analysis section,the basic situation of LETV and the deferred income tax amount confirmed are first introduced.Secondly,the motivation and means of LETV's recognition of deferred income tax assets for earnings management are analyzed.It is found that LETV is out of debt contract,maintains listing qualification and the implementation of the equity incentive plan,using deductible losses,bad debt provision,internal unrealized profits and inventory depreciation reserves to confirm the deferred income tax assets in large quantities to achieve the purpose of using the deferred income tax for earnings management.After confirming the deferred income tax assets,LETV has inflated the total assets and the profitability of LETV.The financial statements failed to reflect its real financial situation,misleading investors and creditors,and also buried hidden dangers for the debt crisisIn order to prevent listed enterprises from using deferred income tax for earnings management,this paper analyzes the earnings management behavior of LETV using deferred income tax from four aspects:First is the lack of effective internal control,enterprise fails to effectively evaluate the excessive expansion of enterprise behavior,lead to a crisis of capital chain rupture;Second,China's accounting standards and accounting system provisions are not clear,there is room for enterprises to use deferred income tax earnings management;Third,the intermediary institutions did not perform their regulatory duties,and the certified public accountants failed to strictly examine the real financial situation of LETV.Fourth,the delisting system of listed companies in China pays too much attention to financial indicators,and enterprises will adopt various surplus means to adjust financial data to avoid delisting.Then raise four suggestions: First,enhance the enterprise internal control,set up perfect internal control system and improve enterprise risk prevention consciousness;Second,improve the accounting standards and accounting system,refine the deferred income tax recognition standard and disclosure mechanism;Third,maintain the independence of external audit,pay attention to the training of certified public accountants' professional skills and professional ethics;Fourth,strengthen government supervision,improve the legal system of relevant supervision,and optimize the evaluation standard of financial indicators in the delisting system.