A Case Study On M Company’s Earnings Management Based On Deferred Income Tax

After the implementation of Enterprise Accounting Standard No.18-Income Tax in China,the income tax accounting method began to adopt the balance sheet debt method.Although this method focuses on temporary differences that can provide more useful accounting information for decision-making,it also relies too heavily on the subjective judgment of management.This not only affects the quality of financial statement information to a certain extent,but also increases the space for management to conduct earnings management.In the existing research,there are more empirical studies on deferred income tax earnings management,but less Case study.Moreover,the limited Case study mainly focus on the impact of different earnings management on the statements,and the depth of research is very limited.Enriching Case study on earnings management from the perspective of deferred income tax can reduce the cost control of enterprises through this path,restore the true business situation of enterprises and broaden new ways to identify corporate earnings management.The Case study of M Company will help improve the quality of the company’s financial information disclosure,help investors better grasp the investment opportunity to develop more effective investment strategies,and reduce financial risks.Based under the background research of relevant literature review at domestic and foreign,and based on the principal-agent theory,information asymmetry theory,and income tax accounting theory,this paper explains the business development,financial status,and basic situation of deferred income tax recognition of M company,and find that M company’s financial situation is not good and faces financial risks.Then,by comparing with the data of the industry in which it is located,it was found that M Company continued to recognize large deferred income tax assets despite poor operating conditions,and did not recognize deferred income tax liabilities.Therefore,M Company was selected as the case study object.In the case study section,the situation of M Company is first explained in detail,which mainly recognized high deferred income tax assets through accounts such as deductible losses and asset impairment provisions,thus forming a path for earnings management.Secondly,it is explained that M Company’s earnings management based on deferred income tax mainly reflected the inflated deferred income tax assets and insufficient disclosure of deferred income tax matters.The results show that M Company has used deferred income tax to whitewash financial statements,overestimate profitability,and overestimate debt repayment ability,achieving the purpose of earnings management.Finally,combined with the reflection of M Company’s earnings management behavior,suggestions are proposed to improve the relevant rules for deferred income tax matters,curb the abuse of discretion by enterprises at the level of deferred income tax,and increase the audit supervision of deferred income tax projects.,which can timely detect the behavior of enterprises in earnings management based on deferred income tax to ensure the reliability and authenticity of enterprise accounting information quality.