Research On The Earnings Management Of Dalian Port (PDA) Co.,Ltd.

Dalian Port,which is backed by the three provinces of Northeast China,the eastern part of Inner Mongolia,and the economic hinterland of the Bohai Sea region,has a long history and profound foundation.It is a deep-water port and connects with major hub cities in Northeast Asia.It is the most important comprehensive foreign trade port in Northeast China.In March 2018,Dalian Port was the first listed company in stock markets of Shanghai and Shenzhen to be issued an audit report of modified audit opinion,which caused widespread concern in the capital market.Dalian Port's annual audit accountant in FY2017,PWC,held the view that there were problems with the provision for bad debts of receivables,which violated the relevant provisions of accounting policies and accounting standards,and Dalian Port did not provide sufficient basis for explaining its practices.At the same time,PWC believed that the relevant confirmation procedures and alternative procedures were invalid,so an audit report with reservations was issued.Subsequently,the Shanghai Stock Exchange issued a letter of inquiry to Dalian Port and PWC,inquiring about the reasons for issuing the audit report with reservation and the key issues of the company's management.In June 2018,Dalian Port sold its subsidiary,Jingang Automobile,whose receivables were doubted by PWC and the Shanghai Stock Exchange.In January 2019,the Shanghai Stock Exchange decided to perform supervisory policy on the relevant executives and responsible persons of Dalian Port.This paper attempts to analyze the reasons for Dalian Port's audit report with reservations.Combined with the relevant information disclosed by Dalian Port,this paper finds that Dalian Port may managed earnings by manipulating the provision for bad debts of receivables and confusing public disclosure information.Based on the analysis of the status quo of Dalian Port's management status and the audit report with reservations,four major doubts of the receivables were identified:Dalian Port's bad debt provision for receivables from Dalian Bohui was accrued against accounting policies,and the amount of bad debt provision in 2017 was abnormally fluctuating.In the past three years,there have been a large number of receivables that have been overdue but have not been accrued for bad debts.In the annual reports of FY2016 and FY2017,the account-age and the nature of other receivables are contradictory.Based on the identification of the four major doubts,this paper analyzes the management methods of Dalian Port's earnings,and believes that Dalian Port managed earnings by using three methods.First,Dalian Port withdrew less provision for bad debts of receivables from Dalian Bohui,and didn't withdraw any provision for bad debts on huge amount of overdue receivables,and confused the account-age and the nature of other receivables to cover up the risk and mislead the information users.At the same time,this paper analyzes the causes of earnings management and finds that due to changes in revenue recognition mode,decline in profitability,rising financial costs,and decline in government subsidies,Dalian Port's net profit level declines.Based on capital market motives,contractual motives,and policy motives,Dalian Port implemented earnings management behavior.And then this paper uses all accruals profit model to test the earnings management behavior,which proves the author's analysis of the existence of earnings management behavior of Dalian Port.Finally,from perspectives of the listed companies themselves,investors,and external supervisors,the implications of earnings management of Dalian Port are derived.Listed companies should improve their abilities of management,standardize account processing and internal control,improve their debt structure,and finally reduce their reliance on earnings management,and concentrate more on improving their operational capabilities to withstand risks.Investors should enhance their ability to identify and analyze earnings management,and see the true state of business operations under their financial reporting figures to make the right investment decisions.For external supervisors,on the one hand,it should strengthen the supervision of CPA auditing and regulatory agencies.On the other hand,the accounting principle should be improved in coverage and quantitative standards,and be strengthened in the requirements for information disclosure,and the use of subjective judgments and human manipulation by enterprises should be reduced.And the space for earnings management should be reduced too.Thereby the earnings management behavior could be effectively suppressed and disclosure of truthful,fair and reliable information by enterprises could be ensured.