Financial statements are official records of an enterprise's financial status and operating results, and their preparation and disclosure should comply with relevant accounting standards and laws and regulations. However, in some cases, companies may use legal financial statement adjustments to influence investors and analysts' judgments on their financial status. The following are some common legal adjustment methods and how they may be abused： ### 1. **Income recognition policy** -**Legal means**: Companies can choose different income recognition policies in accordance with accounting standards, such as confirming income when the goods are delivered, or confirming income when payment is received. -**Abuse method**: Companies may smooth out profits by confirming income in advance or delaying the confirmation of income, thereby affecting investors' judgment of current performance. ### 2. **Depreciation and amortization methods** -**Legal means**: Enterprises can choose different depreciation and amortization methods (such as straight-line method or accelerated depreciation method) to share the cost of assets. -**Abuse method**: By choosing different depreciation methods, companies can affect current profits, thereby misleading investors about the efficiency of asset use and future profitability. ### 3. **Inventory pricing method** -**Legal means**: Companies can use different inventory pricing methods, such as first-in, first-out (FIFO) or last-in, first-out (LIFO). -**Abuse method**: By changing the inventory pricing method, companies can affect the cost of sales and the value of inventory at the end of the period, thereby affecting the current profit. ### 4. **Reserves and accrued items** -**Legal means**: An enterprise can make reserves or accrued items based on expected losses or future expenditures. -**Abuse method**: Companies may smooth out profits by over-accounting or under-accounting reserves, thereby affecting investors' judgment of current and future performance. ### 5. **Non-recurring items** -**Legal means**: Companies can list certain items as non-recurring items, such as restructuring expenses or asset impairment losses. -**Abuse method**: By classifying recurring projects as non-recurring projects, companies can mask the true performance of their core business. ### 6. **Related party transactions** -**Legal means**: Companies can conduct transactions with related parties, as long as these transactions are carried out at market prices and fully disclosed. -**Abusive methods**: Companies may transfer profits or losses through related-party transactions, thereby affecting the authenticity of financial statements. ### 7. **Changes in accounting estimates** -**Legal means**: Companies can change accounting estimates based on new information or circumstances, such as bad debt reserves or asset service life. -**Abusive methods**: Companies may manipulate profits by frequently changing accounting estimates, thereby affecting investors' judgment of financial conditions. ### 8. **Capitalization and costization** -**Legal means**: Companies can choose to capitalize or spend certain expenditures, such as R&D expenditures or maintenance expenses. -**Abuse method**: Through capitalized expenditures, companies can postpone expense confirmation, thereby affecting current profits. ###Regulation and Transparency Although these adjustment methods are technically legal, their abuse may violate the spirit of accounting standards and even constitute financial fraud. Therefore, regulatory agencies (such as the SEC, FASB, IASB, etc.) require companies to fully disclose their accounting policies and estimates, and ensure the transparency and consistency of financial statements. ### Conclusion Although there are legal means of adjusting financial statements, the abuse of these methods may mislead investors and analysts. Investors and analysts should carefully read the notes to the financial statements, understand the company's accounting policies and estimates, and be vigilant for potential manipulation. In addition, strict review by regulatory agencies and independent audit by auditors are also important guarantees to ensure the authenticity and reliability of financial statements.