The Impact of Increased Managerial Discretion and of Adoption Disclosure Transparency on the Usefulness of Reported Revenues: Evidence from Accounting Standard Updates for Multiple-Deliverable Sales Arrangements

74 Pages Posted: 4 Feb 2015 Last revised: 21 Jun 2021

See all articles by Linda A. Myers

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Roy Schmardebeck

The University of Tennessee, Knoxville - Haslam College of Business, Accounting and Information Management

Timothy A. Seidel

Brigham Young University

Michael D. Stuart

Oklahoma State University - Stillwater - Spears School of Business

Date Written: June 2021

Abstract

Although conceptual frameworks of the Financial Accounting Standards Board and the International Accounting Standards Board identify relevance and faithful representation as the fundamental qualitative characteristics of useful information, prior research suggests that revenue recognition accounting standards which restrict management discretion resulted in improved faithful representation but reduced relevance of reported revenues. We use the adoption of Accounting Standards Update (ASU) 2009-13 and ASU 2009-14 to examine the effects of increased management discretion to accelerate revenue recognition in multiple-deliverable arrangements. We find that increased discretion in revenue recognition results in an increase in the relevance of reported revenues without reducing faithful representation. We further examine whether managers’ strategic motivations influence the transparency of ASU 2009-13 and ASU 2009-14 adoption disclosure. Despite no evidence of a decline in faithful representation following the standards’ adoption, firms providing less transparent adoption disclosure are more likely than other firms with multiple-deliverable arrangements to opportunistically accelerate revenue recognition in the years after adoption when incentives are high. These results provide important evidence in assessing whether standards that allow greater discretion in revenue recognition affect the usefulness of revenues, and also provide evidence that strategic motivations to preserve flexibility in managing earnings influence the transparency of adoption disclosure.

Keywords: revenue recognition; managerial discretion; relevance; faithful representation; disclosure transparency

JEL Classification: M4, M41

Suggested Citation

Myers, Linda A. and Schmardebeck, Roy and Seidel, Timothy A. and Stuart, Michael D., The Impact of Increased Managerial Discretion and of Adoption Disclosure Transparency on the Usefulness of Reported Revenues: Evidence from Accounting Standard Updates for Multiple-Deliverable Sales Arrangements (June 2021). Available at SSRN: https://ssrn.com/abstract=2559438 or http://dx.doi.org/10.2139/ssrn.2559438

Linda A. Myers (Contact Author)

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

Roy Schmardebeck

The University of Tennessee, Knoxville - Haslam College of Business, Accounting and Information Management ( email )

The Boyd Center for Business and Economic Research
Knoxville, TN 37996
United States

Timothy A. Seidel

Brigham Young University ( email )

Provo, UT 84602
United States

Michael D. Stuart

Oklahoma State University - Stillwater - Spears School of Business ( email )

201 Business
Stillwater, OK 74078-0555
United States

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