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

53 Pages Posted: 4 Feb 2015 Last revised: 2 Feb 2019

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

Vanderbilt University - Accounting

Date Written: January 31, 2019

Abstract

Although the Financial Accounting Standards Board’s conceptual framework identifies 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, and we find that increased discretion results in an increase in the relevance of reported revenues without compromising faithful representation. Overall, the results suggest that increased managerial discretion in revenue recognition is associated with an increase in the usefulness of revenues.

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

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 on the Usefulness of Reported Revenues: Evidence from Accounting Standard Updates for Multiple-Deliverable Sales Arrangements (January 31, 2019). Vanderbilt Owen Graduate School of Management Research Paper No. 2559438. 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

Vanderbilt University - Accounting ( email )

Nashville, TN 37203
United States

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