The practice of artificially embellishing earnings by using technical adjustments in a company's financial statements is often referred to as "earnings management." While these practices may be legal in some cases, they can have a negative impact on the authenticity and transparency of financial statements. Here are some common earnings management techniques: 1. **Adjustments to the timing of revenue recognition**: - A company can choose to recognize revenue in a future accounting period or recognize it in advance, for example, by signing a contract in advance or using prepayments from long-term customers. 2. **Capitalization of expenses**: - Capitalizing a portion of an expense instead of immediately deducting it from current expenses. For example, research and development costs or software development costs can be capitalized, thereby reducing expenses in the current profit and loss. 3. **Adjustments to bad debt reserves**: - Appropriately adjusting the amount of bad debt reserves in the financial statements, increasing or decreasing the bad debt reserves can directly affect the company's profits. 4. **Adjustments to inventory estimates**: - Companies can affect costs and profits by using different inventory valuation methods (such as first-in, first-out (FIFO) or last-in, first-out (LIFO)) and different inventory measurement techniques. 5. **Treatment of one-time items**: - Adjusting non-recurring income or expenses and classifying them as one-time items can reduce the impact on normal operating results, thereby beautifying ongoing profitability. 6. **Arrangement of related-party transactions**: - Adjusting profits through transactions with related parties, for example, by selling goods to related companies to increase reported profits, or obtaining preferential treatment in procurement to reduce costs. 7. **Fictitious or prepaid income**: - Artificially exaggerating or recognizing sales revenue in advance within the scope permitted by laws and standards. It should be noted that although these methods may appear legal in some cases, they may lead to legal and ethical risks, and may result in penalties and reputational losses once discovered by regulatory authorities. Therefore, companies should ensure the truthfulness and accuracy of financial statements while complying with relevant accounting standards and regulations.