Research On Earnings Management Of Capitalized R&D Expenditure Of Gotion High-tech

At present,Chinese accounting standards implement conditional capitalization of R&D expenditures,but there is no clear and specific definition of the criteria for capitalization,so the definition of the criteria for capitalization of R&D expenditures by each enterprise is more likely to be influenced by human subjective factors,which leaves more space for management to use capitalization of R&D expenditures for earnings management.For technology enterprises,R&D expenditures account for a large proportion of all the expenditures of the company,and reflect an important indicator of the company’s development and innovation ability to the society.If such enterprises use capitalization of R&D expenditures for earnings management,it will be harmful to the development of enterprises and Chinese capital market.Based on the above background,this paper focuses on the relationship between capitalization of R&D expenditures and earnings management of science and technology enterprises.Nowadays,new energy vehicles have been developing prosperously under the dual background of automotive transformation and favorable policies,and power battery enterprises,as their energy suppliers,have also benefited from this.Power battery enterprises belong to the R&D enterprises.As the earliest enterprise in the power battery industry to enter the Chinese capital market,Gotion High-Tech is representative of the industry,and its market scale is also at the forefront of the industry,belonging to one of the leading power battery enterprises.Due to the serious decline of profit in 2019-2021,the severe business situation of Gotion High-Tech has caused widespread concern among investors,but the amount of its R&D investment has increased rather than decreased in recent years,and the capitalization rate of R&D expenditure has also increased significantly.Therefore,this paper selects Gotion High-Tech as the case study object to analyze whether it uses capitalization of R&D expenditures for earnings management and tries to address the following questions: i.What is the R&D investment and operation situation of Gotion High-Tech in recent years? ii.What are the motivations of earnings management of Gotion High-tech? How to identify them? iii.What are the consequences and impacts of using excessive capitalization of R&D expenditures for earnings management? iv.What is the reasonable capitalization rate for R&D expenditure of Gotion High-Tech? v.What should companies,accounting standard setters and regulators do to reduce the occurrence of earnings management?This paper first analyzes the operation and R&D investment of Gotion High-Tech in recent years,then reasons and elaborates on the motives of capitalizing R&D expenditures for earnings management of Gotion High-tech,then identifies the earnings management of Gotion High-Tech by horizontal and vertical comparison of R&D investment and using the modified Jones model,then elaborate the consequence earnings management.Finally,discusses the reasonable range of capitalization rates for Gotion High-tech ’s R&D expenditures.The following conclusions are drawn from the analysis: i.In recent years,Gotion High-Tech has increased revenue but its profit has declined seriously,and its R&D expenditure and capitalization rate of R&D expenditure have been increasing.ii.In order to avoid delisting,motivated by debt covenants and equity financing motivation and compared with other earnings management means,the means of capitalizing R&D expenditures is better,so Gotion High-Tech used this method for earnings management.iii.After the earnings management,the current income tax expense and the future amortization amount of intangible assets of Gotion High-Tech has increased significantly,which brings potential business risks to the company in the future.iv.The capitalization rate of 5% to 20% for R&D expenditure is a more reasonable range.v.The analysis provides suggestions to reduce the occurrence of corporate earnings management: Firstly,the construction of internal control system should be strengthened.Secondly,the accounting standard-setting department needs to improve the criteria for defining the capitalization of R&D expenditures.Finally,external auditors and regulatory authorities should strengthen their efforts to review and combat earnings management.