Case Study On Earnings Management Of Weifang Yaxing Chemical Company Limited By Shares

The issue of earnings management has been the focus of the theoretical and practical circles since it was put forward.The study of the academic circles can be traced back to the 1980s.Earnings management problems are also widely found in listed companies in China.Studies have shown that the ability to respond to earnings management benefits by earnings management is reduced.On the one hand,it is difficult for the information users to accurately measure the value of the enterprise.On the other hand,some of the methods adopted by listed companies are at the expense of the future profitability of the enterprise.Therefore,it is very important to identify and curb earnings management.Yaxing Chemical is based on the production and sale of chlorinated polyethylene(CPE)and caustic soda,which is based on the production and sale of hydrazine hydrate and ADC foaming agent.Yaxing Chemical has been warned twice since it became listed company.The most recent delisting risk warning was in February 2016,when the audited net profit for 2014 and 2015 was negative for two consecutive years and the net assets audited in 2015 were also negative.Yaxing Chemical was special treated by the Shanghai Stock Exchange.In order to keep the qualification of listed companies,Yaxing Chemical in 2016 had took a series of rescue measures.In order to ensure that the net profit in 2016 is positive,first,Yaxing Chemical by expanding production,reduce discretionary expenses to reduce product costs,The provision for impairment of assets for the year of 2015 is piling up the profit for the year 2016.Then reversing the provision for impairment of inventories.And it also extended the sales conditions to expand sales.But these failed to achieve the purpose.Followed by controlling non-operating projects to achieve revenue and helped enterprises turn around.It included investment in the establishment of Sino-Forest Trade Co.Ltd.and sold to the related parties.It also sold asset to the related parties and accepted government subsidies.In order to make the net assets positive,Yaxing Chemical sold the loss company of Yaxing Hushi,whose purpose was to stripped its bad assets.That could reduce the overall burden.Then Yaxing accepted the donation of related parties,which completely change the net assets of the negative situation.Although the behavior of Yaxing Chemical make it out of the risk of delisting,it did not fairly respond to the true business situation.This is a matter of earnings management.Earnings management will lead to a decline in its future performance.Its profitability will be not sustainable and make future financing is more difficult.Based on the case study of Yaxing Chemical,this paper puts forward the following five suggestions for controlling the earnings management of listed companies:Optimizing the ownership structure,to avoid a dominance;Improving the delisting system,to enrich the enterprise evaluation standards;Strengthening internal and external audit,pay attention to corporate governance;Standardized information disclosure,so that enterprises are widely Supervise;Strictly control the government supporting and implement the responsibility system.