Discussion On Earnings Management Of R&D Expenditure Of High-tech Enterprises

On February 15,2006,the ministry of finance issued decree No.33,marking the birth of China's first "accounting standards for enterprises".Accounting standards for enterprises is a comprehensive revision of the numerous accounting systems for enterprises implemented before 2006,among which the biggest change is the accounting treatment of enterprise R&D expenditure.The accounting structure before 2006 stipulates that all of the enterprise R&D expenditure is charged to expenses.However,with the continuous development of economy and more and more frequent research and development activities of enterprises,the uniform expense accounting treatment has begun to show drawbacks.In order to make enterprise R&D expenditure get more reasonable measurement and make enterprise get better development,the accounting standards from 2006 stipulates that R&D expenditure is divided into capitalization expenditure and expense expenditure.All expenses incurred at the research stage of the enterprise shall be charged to current profits and losses and deducted from current profits.The part of expenditures eligible for capitalization in the development stage shall be capitalized,included in the intangible assets and amortized in subsequent years.However,the partial capitalized accounting treatment of R&D expenditure encourages enterprises to strengthen self-development and self-creation,but also provides enterprises with space for earnings management.At present,there are many researches on earnings management in China,but there are few researches only on earnings management through R&D expenditure.In this field,most researches are only empirical researches on manufacturing industry and medical industry,and few case studies are conducted on high-tech enterprises with very large investment in R&D.Therefore,this article is based on the instance of R&D expenditure of Hwa Create Corporation to research the question of earnings management of R&D expenditure in high-tech enterprises and give measures and suggestions about regulating the earnings management of R&D expenditure to relevant enterprises and departments by analyzing the abnormal situations and the means,motivations and influences of earnings management in Hwa Create Corporation.This paper adopts the research method of combining theoretical research with case analysis.In the part of theoretical research,after reviewing and summarizing relevant literatures at home and abroad,theoretical discussions were carried out on the concept of R&D expenditure,accounting treatment,and the definition,means,motivation and influence of earnings management,which laid a theoretical foundation for the case analysis afterwards.In the part of case analysis,making analysis of abnormal signs of earnings management in Hwa Create Corporation by investigating the universality of R&D expenditure of high-tech enterprises R&D and the present situation of R&D expenditure of Hwa Create Corporation.And then combined with the relevant financial data and chart analysis,deducing the means,motivations and influences of earnings management through R&D expenditure in Hwa Create Corporation.Finally,this paper draws research conclusions through a series of analysis above,and takes them for example to promote the whole high-tech enterprises,and puts forward some constructive suggestions for high-tech enterprises and relevant departments to regulate the earnings management of R&D expenditure.The basic framework of this paper is mainly divided into five parts: the first part is the introduction,which mainly introduces the research background and significance of this paper.This paper reviews the relevant literatures on R&D expenditure and earnings management,and expounds the research methods and ideas of this paper,and constructs the overall framework of this paper.The second part is the theoretical overview of earnings management of R&D expenditure.This paper mainly introduces the concepts of R&D expenditure and earnings management,and the reasons,means and influences of using R&D expenditure for earnings management,and finally expounds the three theoretical foundations of using R&D expenditure for earnings management.The third part is the case introduction of the earnings management of R&D expenditure of Hwa Create Corporation.Based on the basic situation and governance structure of Hwa Create Corporation,combined with the universal characteristics of R&D expenditure of high-tech enterprises,the present situation of R&D expenditure of Hwa Create Corporation is introduced in detail.The fourth part is case analysis.This part firstly analyzes the evidence that Hwa Create Corporation uses R&D expenditure for earnings management,and then analyzes the motivation of Hwa Create Corporation from the four aspects of turning losses into profits,income smoothing,reward contract and debt contract,and finally analyzes the impact of using R&D expenditure for earnings management in Hwa Create Corporation.The fifth part is the research conclusions and the policy recommendations.This part summarizes the case of earnings management of R&D expenditure of Hwa Create Corporation,and provides some policy suggestions on how to effectively regulate high-tech enterprises from conducting earnings management through R&D expenditure.The main contributions of this paper are as follows: The first,combined with real cases in China's securities market,this paper analyzes the main means,motivations and influences of high-tech enterprises' earnings management through R&D expenditure,and makes up for the shortage of case analysis of using R&D expenditure for earnings management in high-tech enterprises;The second,through a more detailed analysis of the case,this paper reveals how high-tech enterprises use the loopholes of R&D expenditure information disclosure and the capitalization rate of R&D expenditure for earnings management,and provides experience for relevant departments to analyze the earnings management of R&D expenditure for high-tech enterprises;The third,combining relevant theoretical knowledge and analyzing typical cases,this paper puts forward some constructive suggestions for high-tech enterprises and relevant departments to regulate the earnings management of R&D expenditure.