A Case Study Of Wu Tong Holding On Earnings Management Using Goodwill Impairment

In the past few years,China’s M&A market is very active,as the goodwill increases rapidly,the goodwill impairment also shows a rapid growth trend too.Impairment of goodwill causes a big loss of profits,destroying the image of the corporation and the interests of the stakeholders.China’s accounting standards for enterprises provide that the goodwill’s follow-up measurement method mainly is impairment test method,its intention is to make the value of goodwill assets of the listed companies in China more fair.However,after the problem of goodwill impairment appears,the managers of the listed companies often do not deal with it first,but wait until a certain time to confirm large amount of goodwill impairment intensively.These behaviors of the listed companies violate the original intention of impairment test,making goodwill impairment a way of earnings management.What motives are hidden behind the behaviors,and what kind of economic consequences and and enlightenment do they bring to us? We need to discuss and analyze the questions carefully.On the basis of sorting out the literature and summarizing the related concepts and theories of goodwill impairment and earnings management.The paper selects Wu tong holding as the case to analyze.Firstly,this paper reviews the process of high premium M & A of Wu tong holding from 2013 to 2017 and the subsequent impairment of goodwill.The modified Jones model is used to verify that Wu tong holding does exist earnings management behaviors.Secondly,the paper summarizes the motivations and means of earnings management of Wu tong holding.and its earnings management behaviors,on the one hand,reduced the burden on the company’s future profits,on the other hand,they also caused the company’s market value to plummet and had seriously damaged the corporate image.In response to the above analysis,the enlightenment brought to us by the case includes: M&A decisions and valuations in M&A should be reasonable,investment considerations should be comprehensive,and the supervision of the goodwill impairment behaviors should be strict.At the same time,the author puts forward suggestions for listed companies,regulatory agencies,third-party intermediaries and other subjects.Finally,the writer hopes that the paper can play a positive role for the reduction on the occurrence of the " goodwill thunderstorms ",help the small and medium-sized investors to identify the behavior of earnings management more effectively,and to protect their own interests.