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Abstract：Earnings management is a problem widely studied in foreign economics and accounting. This article starts with its definition， analyzes the positive and negative effects of earnings management， and puts forward some countermeasures on the current situation of earnings management.
Key words： Earnings management； Influence； Governance
1.Earnings management
In order to maximize the utility and maximize the value of the enterprise， enterprises use certain accounting methods and means to make the accounting choice. This behaviour is called as earnings management. The main purpose of earning management is to intervene or influence the financial reports， and then influence the interests and decisions of the stakeholders. Earnings management is a kind of profit manipulation， but it is not the common profit manipulation. Profit manipulation is that someone make profit increase or reduce purposely through illegal methods， and earnings management refers to company consciously choose the accounting policy that is beneficial to it’s own by taking advantage of the alternatives of accounting standards and accounting systems.[2]
2.The influence of earnings management
Earnings management is a neutral word， and there is no good or bad point in itself. Earnings management can be regarded as a double-edged sword. It has two sides to the different stakeholders and the development of the enterprise.[1]
2.1 The positive impact of earnings management
Earnings management has its undeniable positive impact， which is an important skill that the financial manager must master.
1. Moderate earnings management can reduce contract costs.
Allowing earnings management within a certain range will not only reduce contract cost， but also overcome the incompleteness and rigidity of contracts， and protect the interests of enterprises and operators.
2. Moderate earnings management is a means of transmitting internal information.
The management authority's earnings management will deliver the internal information of the enterprise， thus making the accounting information more fully disclosed and the market more effective.
3. Moderate earnings management helps to build up a good corporate image and enhance investor confidence in the enterprise.
Enterprise manager carries out the earnings management by means of profit smoothing and profit maximization. It can convey that good roduction and operation status to the outside， to enhance the corporate image， reduce the impact of the capital market volatility on investors' decision-making behavior， and enhance the confidence of the investors. 2.1 The negative impact of earnings management
Earnings management is legal within the scope of accounting standards， but when the earnings management is more than a reasonable degree， it will have a negative impact.
1. The misuse of earnings management in China has caused serious distortion of accounting information.
Earnings management often makes the accounting information disclosed on the report lack of sufficiency and comprehensiveness， and even lacks objective authenticity， which makes the reliability of the whole financial report greatly reduced. In China， the abuse of earnings management has become one of the most important reasons for the distortion of accounting information.
2. It has a negative impact on resource allocation.
The administration authority delivers untrue earnings information to investors and creditors through earnings management. It will mislead the decision making， make the decision maker have "unfavorable choice"， make the social resources not effectively configured， and damage the efficiency of the whole society.
3. It has a negative impact on the long-term interests of the enterprise.
The abuse of earnings management may bring some benefits to the enterprise in the short term， but it has a negative impact on the long-term interests of the enterprise. Earnings management will undermine investors' judgment on the quality of earnings and lead to a decline in the market value.
3.The governance of the earnings management
In the specific economic environment of our country， the economic system is not complete and the legal system is not perfect. When our listed companies make earnings management， they often break through their legal boundaries. Therefore， improper earnings management is flooding， which harms the interests of investors， creditors and other external information users， and disturbs the order of securities market. Obviously， the negative effect of earnings management in China's listed companies is far greater than its positive impact. In this regard， we need to take some measures to control earnings management， control it in the scope of the accounting standards， and minimize the negative effects.
3.1 Improving the accounting standards and accounting systems to ensure the quality of accounting information disclosure.
In order to adapt to the changes in the economic environment， the accounting standards have an alternative space in the formulation of the accounting standards. In addition to the emergence of new economic operations， the identification， measurement and reporting of some transactions and economic matters have not been stipulated in the relevant guidelines. Therefore， the accounting standards lag behind the development of practice and the innovation of economic behavior to a certain extent. This provides a lot of space for the operation of earnings management. The new accounting standards issued in 2006 are more reflected in the convergence of the international accounting standards ， and have great positive significance. Among them， impairment of assets， inventory valuation and scope of merger have reduced the space of earnings management， and to a certain extent， improve the quality of accounting system. It is necessary to continuously supplement and amend the specific accounting standards and accounting systems that have been introduced. For larger accounting policies， more detailed restrictions should be laid down， and the conditions for different accounting treatment methods and estimation methods should be set more clearly， so as to reduce the adjustable space. At the same time， we should improve the information disclosure system， and provide clear and specific rules for the disclosure， such as the content， way and time of disclosure of listed companies' accounting information， thus improve the openness and transparency of information， reduce the asymmetry of information.
3.2 Improving the corporate governance structureThe corporate governance structure is a kind of institutional arrangement which is based on the contractual relationship between the parties that affect the management behavior of the company. From the external point of view， China has not yet established a fully developed and standardized stock market， and the manager market has not yet been formed. From the internal point of view， The board of directors and the board of supervisors perform practically no function， the incentive mechanism of the company is imperfect and lacks the long-term incentive mechanism linked to the company's performance. These all contribute to the management of earnings management. A good corporate governance structure can effectively prevent the abuse of earnings management， first of all， we should constantly improve the capital market， strengthen the supervision of the securities market and the management of the merger market， and vigorously develop the manager's market. Then， perfecting the independent director system and give full play to the balance of independent directors. Thirdly， a sound and effective incentive mechanism will be made to make the goals of the owners and the operators tend to be consistent. The enterprise should make the performance of the manager no longer only linked to the short-term profit， and can use some long-term remuneration plans in the payment arrangement. For example， introducing new payment for protecting the interests of investors and incentive stock options， to maximize individual interests by pursuing the maximization of corporate profits and long-term growth. Finally， strengthening the internal audit supervision of the enterprises， to promote the enterprise's ability to resist risk， develop its potential and improve its economic benefit. 3.3 Strengthening the supervision of the securities regulatory department
On the one hand， we should improve the control index of the new shares and the qualification of the allotment of shares， and carry out the multi-directional evaluation. At present， there is only one net asset return rate， which has a single index， with a lot of subjectivity. A more scientific indicator system should be set up to avoid the unitary nature of the indicators， and encourage management authorities to conduct earnings management.[2]
4.Conclusion
Earnings management itself has two aspects of positive and negative effects， appropriate earnings management is the sign of the company's maturity. But under the specific environment of China， the negative effect of the earnings management of the listed companies is far outweigh the positive effect of the listed companies. So we need to improve the accounting standards and accounting system， improve the corporate governance structure and strengthen the supervision of the securities regulatory authorities， so as to better play the benefits of earnings management and reduce the impact of improper earnings management.
References：
[1]Schipper K. Commentary on Earnings Management[J]. Accounting Horizons， 1989， 3.
[2]倪燕. 企業盈余管理的影响与治理[J]. 合作经济与科技， 2008（20）：77-78.
作者简介：AL MAIMOONI ABDULLAH AHMED OTAIFH（1981-02），硕士研究生，主要研究方向：会计学。
Key words： Earnings management； Influence； Governance
1.Earnings management
In order to maximize the utility and maximize the value of the enterprise， enterprises use certain accounting methods and means to make the accounting choice. This behaviour is called as earnings management. The main purpose of earning management is to intervene or influence the financial reports， and then influence the interests and decisions of the stakeholders. Earnings management is a kind of profit manipulation， but it is not the common profit manipulation. Profit manipulation is that someone make profit increase or reduce purposely through illegal methods， and earnings management refers to company consciously choose the accounting policy that is beneficial to it’s own by taking advantage of the alternatives of accounting standards and accounting systems.[2]
2.The influence of earnings management
Earnings management is a neutral word， and there is no good or bad point in itself. Earnings management can be regarded as a double-edged sword. It has two sides to the different stakeholders and the development of the enterprise.[1]
2.1 The positive impact of earnings management
Earnings management has its undeniable positive impact， which is an important skill that the financial manager must master.
1. Moderate earnings management can reduce contract costs.
Allowing earnings management within a certain range will not only reduce contract cost， but also overcome the incompleteness and rigidity of contracts， and protect the interests of enterprises and operators.
2. Moderate earnings management is a means of transmitting internal information.
The management authority's earnings management will deliver the internal information of the enterprise， thus making the accounting information more fully disclosed and the market more effective.
3. Moderate earnings management helps to build up a good corporate image and enhance investor confidence in the enterprise.
Enterprise manager carries out the earnings management by means of profit smoothing and profit maximization. It can convey that good roduction and operation status to the outside， to enhance the corporate image， reduce the impact of the capital market volatility on investors' decision-making behavior， and enhance the confidence of the investors. 2.1 The negative impact of earnings management
Earnings management is legal within the scope of accounting standards， but when the earnings management is more than a reasonable degree， it will have a negative impact.
1. The misuse of earnings management in China has caused serious distortion of accounting information.
Earnings management often makes the accounting information disclosed on the report lack of sufficiency and comprehensiveness， and even lacks objective authenticity， which makes the reliability of the whole financial report greatly reduced. In China， the abuse of earnings management has become one of the most important reasons for the distortion of accounting information.
2. It has a negative impact on resource allocation.
The administration authority delivers untrue earnings information to investors and creditors through earnings management. It will mislead the decision making， make the decision maker have "unfavorable choice"， make the social resources not effectively configured， and damage the efficiency of the whole society.
3. It has a negative impact on the long-term interests of the enterprise.
The abuse of earnings management may bring some benefits to the enterprise in the short term， but it has a negative impact on the long-term interests of the enterprise. Earnings management will undermine investors' judgment on the quality of earnings and lead to a decline in the market value.
3.The governance of the earnings management
In the specific economic environment of our country， the economic system is not complete and the legal system is not perfect. When our listed companies make earnings management， they often break through their legal boundaries. Therefore， improper earnings management is flooding， which harms the interests of investors， creditors and other external information users， and disturbs the order of securities market. Obviously， the negative effect of earnings management in China's listed companies is far greater than its positive impact. In this regard， we need to take some measures to control earnings management， control it in the scope of the accounting standards， and minimize the negative effects.
3.1 Improving the accounting standards and accounting systems to ensure the quality of accounting information disclosure.
In order to adapt to the changes in the economic environment， the accounting standards have an alternative space in the formulation of the accounting standards. In addition to the emergence of new economic operations， the identification， measurement and reporting of some transactions and economic matters have not been stipulated in the relevant guidelines. Therefore， the accounting standards lag behind the development of practice and the innovation of economic behavior to a certain extent. This provides a lot of space for the operation of earnings management. The new accounting standards issued in 2006 are more reflected in the convergence of the international accounting standards ， and have great positive significance. Among them， impairment of assets， inventory valuation and scope of merger have reduced the space of earnings management， and to a certain extent， improve the quality of accounting system. It is necessary to continuously supplement and amend the specific accounting standards and accounting systems that have been introduced. For larger accounting policies， more detailed restrictions should be laid down， and the conditions for different accounting treatment methods and estimation methods should be set more clearly， so as to reduce the adjustable space. At the same time， we should improve the information disclosure system， and provide clear and specific rules for the disclosure， such as the content， way and time of disclosure of listed companies' accounting information， thus improve the openness and transparency of information， reduce the asymmetry of information.
3.2 Improving the corporate governance structureThe corporate governance structure is a kind of institutional arrangement which is based on the contractual relationship between the parties that affect the management behavior of the company. From the external point of view， China has not yet established a fully developed and standardized stock market， and the manager market has not yet been formed. From the internal point of view， The board of directors and the board of supervisors perform practically no function， the incentive mechanism of the company is imperfect and lacks the long-term incentive mechanism linked to the company's performance. These all contribute to the management of earnings management. A good corporate governance structure can effectively prevent the abuse of earnings management， first of all， we should constantly improve the capital market， strengthen the supervision of the securities market and the management of the merger market， and vigorously develop the manager's market. Then， perfecting the independent director system and give full play to the balance of independent directors. Thirdly， a sound and effective incentive mechanism will be made to make the goals of the owners and the operators tend to be consistent. The enterprise should make the performance of the manager no longer only linked to the short-term profit， and can use some long-term remuneration plans in the payment arrangement. For example， introducing new payment for protecting the interests of investors and incentive stock options， to maximize individual interests by pursuing the maximization of corporate profits and long-term growth. Finally， strengthening the internal audit supervision of the enterprises， to promote the enterprise's ability to resist risk， develop its potential and improve its economic benefit. 3.3 Strengthening the supervision of the securities regulatory department
On the one hand， we should improve the control index of the new shares and the qualification of the allotment of shares， and carry out the multi-directional evaluation. At present， there is only one net asset return rate， which has a single index， with a lot of subjectivity. A more scientific indicator system should be set up to avoid the unitary nature of the indicators， and encourage management authorities to conduct earnings management.[2]
4.Conclusion
Earnings management itself has two aspects of positive and negative effects， appropriate earnings management is the sign of the company's maturity. But under the specific environment of China， the negative effect of the earnings management of the listed companies is far outweigh the positive effect of the listed companies. So we need to improve the accounting standards and accounting system， improve the corporate governance structure and strengthen the supervision of the securities regulatory authorities， so as to better play the benefits of earnings management and reduce the impact of improper earnings management.
References：
[1]Schipper K. Commentary on Earnings Management[J]. Accounting Horizons， 1989， 3.
[2]倪燕. 企業盈余管理的影响与治理[J]. 合作经济与科技， 2008（20）：77-78.
作者简介：AL MAIMOONI ABDULLAH AHMED OTAIFH（1981-02），硕士研究生，主要研究方向：会计学。