Research On Earnings Management Of Non-recurring Profit And Loss

Net profit is a key index used to measure the comprehensive strength of stocks,and it is the basic factor that determines the investors’returns.However,in recent years,the frequent occurrence of earnings management has led to the beautification of financial statements and the distortion of net profit,which seriously misleads the economic decisions of stakeholders.In particular,earnings management behavior is particularly common in the delisting risk warning companies.Facing the pressure of survival in the capital market,~*ST enterprises often expect to achieve positive net profit in the specific year,resulting in the common occurrence of"readymade companies"and"zombie companies"in today’s capital market.Non-recurring profit and loss have strong operability and concealment,but the original delisting provision does not make clear that net profit must deduct non-recurring profit and loss.That provides a space for~*ST enterprises to implement earnings management.With the application of the new delisting provision in 2021,the financial indicators of delisting have been changed to the combination of net profit and income,and the calculation of net profit shall deduct non recurring profit and loss.This alteration is to forbid businesses from utilizing non-recurring gains and losses for earnings administration.Under this background,this paper selects Huasu Holdings,which has negative net profit excluding non-recurring profit and loss for 20 consecutive years and been warned of delisting risk again in 2020,as the study case.Through the collection of information such as its industry status,institutional background,financial data,etc.This paper employs the Jones model and the Real Earnings Management model to discern the company’s earnings management conduct.And then,analyzing its motivation,external conditions,specific means and economic consequences.This paper reveals that~*ST Huasu did not cancel the risk warning under the regulation of new delisting provision in 2020,and finally puts forward corresponding governance suggestions for the problems reflected by the case.The objective of this paper is to stress that,although the management of earnings by ST companies based on non-recurring gains and losses can improve their financial results in the short term,it cannot completely resolve their financial issues.And the method of raising net profit can not prove that the company has truly achieved sustainable development.By analyzing this case,we hope that the government and stakeholders will pay attention to enterprises whose net profit has been negative after deducting non-recurring profit and loss.Besides,this paper would like to remind companies to carefully study the new delisting provision and focus their operations on improving their own strength.What’s more,it also has some significance to improve the delisting risk warning provision,to clarify the disclosure standard of non-recurring profit and loss and to strengthen the external supervision prevention.