Real Earnings Management and Accrual-based Earnings Management

Against the backdrop of the rapid development of the capital market and increasingly fierce corporate competition, earnings engagement, working as an important means for enterprises to adjust financial information, has attracted much attention regarding its rationality and potential risks.Enterprises influence financial statements through earnings management to achieve certain effects, which may mislead investors decisions and disrupt the efficiency of resource allocation in the capital market. Therefore, in-depth research on it is of great practical significance. This study focuses on real earnings management and accrual-based earnings management in corporate financial management. By comparing and analyzing their operational mechanisms, specific measures, differential characteristics, and industry application scenarios, it aims to reveal the motives, means, and governance paths of earnings management. The study finds that real earnings management adjusts earnings through constructing real transactions, such as production manipulation and related party transactions, which directly affect corporate cash flows and business activities. While accrual-based earnings management adjusts profits by virtue of accounting policy choices, which act more on financial statement data. These two types of earnings management show differentiated characteristics and applications in the manufacturing industry and service industry. In view of their respective disadvantages, this paper puts forward adjustment measures such as improving accounting standards, strengthening internal governance, and enhancing audit quality, so as to provide references for enterprises to standardize financial operations and optimize regulatory policies.