The Informativeness of SAB 74 Disclosures for Accounting Standard Adoption Outcomes: Evidence from ASC 606

Abstract

This study examines whether Staff Accounting Bulletin (SAB) 74 disclosures are informative about adoption outcomes of the new revenue recognition standard under Accounting Standards Codification (ASC) 606. We document that among materially impacted adopters, those with SAB 74 disclosures suggesting more complex adoptions experience lower revenue-related financial reporting quality and lower information asymmetry in the post-adoption period. Importantly, we find that reductions in information asymmetry only occur for companies with more complex adoptions and high adoption quality. Furthermore, companies that are more prepared to adopt according to the timing and content of SAB 74 disclosures are less likely to experience revenue-related financial reporting issues. Notably, because SAB 74 disclosures are required for all new accounting standards, our results underscore the importance for future research and market participants that evaluate adoption outcomes to consider the information disclosed in SAB 74. Otherwise, they could miss an important facet of the adoption.

Keywords: Revenue recognition; financial statement misstatements; SEC comment letters; information asymmetry; SAB 74; ASC 606; accounting standard adoption