In corporate financial reports, there are indeed some legal accounting adjustment methods, but these methods must be used within the framework of compliance with accounting standards and laws and regulations. The following are some common legal financial statement adjustment methods. Although these methods are legal, if used improperly or abused, they may mislead investors and analysts.： ### 1. **Adjustment of income recognition policy** -**Legal method**: Companies can choose the time point for revenue recognition according to different accounting standards (such as GAAP or IFRS). For example, the completion percentage method and the completion contract method have different effects on revenue recognition. -**Potentially misleading**: By adjusting the time point of income recognition, companies can exaggerate or smooth out income in the short term, thereby affecting investors' judgment of performance. ### 2. **Selection of depreciation and amortization methods** -**Legal method**: Enterprises can choose the straight-line method, the accelerated depreciation method (such as the double balance decreasing method) or the workload method to calculate depreciation. -**Potentially misleading**: Different methods can affect the volatility of profits. For example, the accelerated depreciation method reduces profits in the early stage, while the straight-line method is smoother. ### 3. **Expense capitalization** -**Legal method**: Certain expenditures (such as R&D expenses) can be capitalized if they meet the conditions, rather than immediately costed. -**Potentially misleading**: Excessive capitalization will exaggerate assets and profits, masking the true profitability of the enterprise. ### 4. **Adjustment of reserves and accrued items** -**Legal method**: The enterprise can reasonably estimate and make reserves (such as reserves for bad debts, reserves for warranty, etc.). -**Potentially misleading**: By adjusting the amount of reserves, companies can smooth or manipulate profits during different periods. ### 5. **Classification of non-recurring items** -**Legal method**: Certain one-time gains or losses can be classified as “non-recurring items” to highlight the performance of the core business. -**Potentially misleading**: Classifying frequently occurring projects as non-recurring projects may mask the true operating status of the enterprise. ### 6. **Related party transactions** -**Legal method**: The related party transaction itself is legal, but it needs to be fully disclosed. -**Potentially misleading**: Through related-party transactions, liabilities may be hidden, income may be inflated, or costs may be transferred, thereby misleading outsiders. ### 7. **Off-balance sheet financing** -**Legal method**: Remove liabilities from the balance sheet through leases (especially operating leases), special purpose entities (SPVs), etc. -**Potentially misleading**: May conceal the true financial leverage of the company. ### 8. **Changes in accounting estimates** -**Legal method**: Enterprises can change accounting estimates (such as asset service life, residual value, etc.) based on new information. -**Potentially misleading**: Frequent or overly optimistic changes may distort the comparability of financial data. ### Precautions： -**Compliance**: The above-mentioned methods are legal to the extent permitted by laws and accounting standards, but if they are used to deliberately mislead investors, they may constitute “financial fraud” or “Earnings Management” (Earnings Management), and even trigger legal proceedings. -**Transparency**: Companies should fully disclose accounting policies, estimated changes, and other important matters in their financial statements to help investors and analysts understand the true meaning of the data. ### How can investors prevent it? -**In-depth analysis**: Focus on the cash flow statement, non-GAAP indicators, and management discussion and analysis (MD&A). -**Horizontal comparison**: Compare the accounting policies of other companies in the same industry. -**Audit opinions**: Pay attention to the opinions of independent auditors and the paragraphs on matters emphasized. In short, although these adjustment methods are technically legal, they may be used to mislead the market. Investors and analysts need to pay attention to the actual financial situation of the company through superficial data.