Recognition and Analysis of Connected Transaction’s Earnings Management in Letv Ecology
Wang Fushun · 2018
Through financial strategy matrix, the paper firstly concludes Letv's problems on rapid expansion, single profits and capital shortage, indicating that the current financial status of Letv is difficult to support "Letv ecology" constructed by its management.It has earnings management motivation.Subsequently, through further analysis, it is found that Letv carried out earnings management of connected transaction by non-commercial purchase and sales and the means of loss "shifting" minority.Finally, this paper puts forward reasonable suggestions on how to improve the company's internal control system and standardize information disclosure of connected transaction. Summary of Connected TransactionThere are various means of earnings management in listed companies, especially using non-explicit provisions of accounting policies and accounting estimation to manipulate profits through connected transactions.As the item of transferring assets or obligations incurred between listed companies and related parties, there is special interest relationship in connected transaction's main body.And with great complexity and concealment, it is easier to be used by listed companies as the means of earnings management.Many companies in China are listed by the parent company's part of high-quality assets, the close relationship between the parent company and other subsidiaries in supply, production, sales, technology and labor service will inevitably generate a large number of connected transactions, providing opportunities for the management to realize profit manipulation.The earnings management of connected transaction only changes the profit amount on the book, and the actual profit amount will not change accordingly, which seriously reduces the credibility of the company's financial statements, damages the interest of the small and medium-sized investors, harms the function of optimizing resource allocation in securities market.It can also make investors lose confidence on China's capital market.Therefore, it has important practical significance on studying how to identify and prevent the connected transaction's earnings management of listed companies.