Fair Value, Earnings Management And The Quality Of Financial Reporting

In China, the study the Fair Value Measurement concept has began since the1990s. In1998, the Fair Value Measurement attribute was introduced in Non-Monetary Transactions, Debt Restructuring and Investment Standards for the first time in1998.Due to the absence of Chinese companies’internal governance mechanisms and the serious speculation in the stock markets, the fair value method has gradually become a useful tool for some companies to manage earnings. In order to ensure the reliability of financial reporting information and base on the consideration of the anti-profit-manipulation, the Ministry of Finance has avoided the use of fair value in accounting standards2001revision. Along with the accession to the World Trade Organization and the further economic globalization, the international convergence of the Chinese accounting standards is needed stronger. The Ministry of Finance introduced the Fair Value Measurement attribute into new revised accounting standards in2006. Fair value Method experienced the status of a preliminary attempt, evading use and conditional general use. Fair Value Method and the resulting economic consequences, including earnings management, became one of the hottest discussions in China.This article is to explore accounting measurement of fair value for earnings management in reality with the sample of Chinese listed companies in transition period. Regulators and accounting standard-setters have been committed to improving the quality of financial reporting information. The two main indicators to measure the quality of accounting information are relevance and reliability. The two indicators are a contradiction. How to fully utilize the Fair Value Measurement attributes to enhance relevance of accounting information? How to make effective prevention of listed companies to manage earnings with fair value, to ensure the reliability of the information and to improve the accounting information useful to decision-makers? These are of great significance for further developing and expanding China’s capital market, actively playing direct financing, and protecting the interests of investors.After practice and exploration, the author gave some suggestion as below:first of all, the company should improve the corporate governance structure. Establishing a modern enterprise system which of the independent directors as the core. With the independent directors’diversionary effect, the board can really play a role in supervising and guiding. Also separating of governance and management, it can establish the separation of powers system from top to bottom. Secondly, to ensure the effectiveness, timeliness and completeness of the financial information disclosure, listed companies should be required to increase efforts to the disclosure of financial information and significant events, and also given effective monitoring and punishment mechanisms. In the final end, the author reminded the standard-setter that "principle-oriented" Accounting Standards is slightly ahead of the reality for Chinese enterprises in transition period. Standard setters should timely release of the relevant guidelines and supporting standards to ensure that high-quality financial reporting information.