Interpreting Strategic Earnings Management Of Enterprises

The operation surplus management refers to the reasonable result of the operation mode, including paction mode, pricing, enterprise merger, etc., so that the accounting statements will show the desired results.

The usual means of operation surplus management include entrusted operation, cooperative operation, related paction, and asset pfer. However, these four means are often based on non fair paction price (or contract terms) to achieve the purpose of affecting accounting statements, often slipping into the abyss of "operating profit", which is also the focus of supervision departments.

This article is no longer involved.

Strategic earnings management refers to the realization of earnings management by means of overall strategic considerations and planning, supplemented by various means such as accounting policy choice, operation mode selection and financial arrangement.

Compared with the above three types of earnings management, strategic earnings management is not a new method of earnings management, but a flexible combination and comprehensive application of the above three kinds of earnings management in a systematic thinking mode.

GE (General Electric) is

An example of application.

In 1983 - 1993, through effective earnings management, GE's profits and share prices showed steady growth, setting up a good image of the securities industry's "no sunset".

GE

And the diversified business structure gives it many opportunities to do so.

First Boston Corporation analyst Sankey points out that GE capital has "extraordinary ability to create profits when needed," because its "diversified business portfolio" offers "great flexibility to report earnings."

On the one hand, GE has been constantly merging and restructuring to form a three level industry (business) portfolio that has always been well matched.

The first level, core business: directly affects the near future.

To provide cash flow to maintain business in the enterprise;

The second level, growth business: the new business that is rising, with high growth potential, has the potential to replace the first level, and will eventually replace the first level.

The third level is seed business: we need to focus on selecting carefully cultivated projects.

The three level of business pformation: when the existing core business is declining in the "tomorrow", the "today" growth business will become the core business of tomorrow, and the seed business of "today" will also be pformed into "tomorrow" growth business, and will be ready to provide the basic cash flow for the enterprise to maintain operation on the day after tomorrow.

GE, through reasonable planning, realizes the substitution of business and avoids the huge profits.

On the other hand, GE achieves the goal of smoothing profits by making conscious arrangements for the liquidation and exit of some inferior businesses while gaining high investment returns by selling advantageous businesses.

The strategic level of earnings management is applicable to diversified large enterprise groups involved in many fields and financial holding companies characterized by mergers and acquisitions.

The strategic level of earnings management will not touch the bottom line of the securities market regulators. The main points are reasonable combination of business and reasonable arrangement of business pactions and liquidation time.