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

52 Pages Posted: 29 Apr 2021 Last revised: 8 Dec 2021

See all articles by Jaehan Ahn

Jaehan Ahn

Northeastern University - Accounting Group

Udi Hoitash

Northeastern University - Accounting Group

Roy Schmardebeck

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

Date Written: December 07, 2021

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

Suggested Citation

Ahn, Jaehan and Hoitash, Udi and Schmardebeck, Roy, The Informativeness of SAB 74 Disclosures for Accounting Standard Adoption Outcomes: Evidence from ASC 606 (December 07, 2021). Available at SSRN: https://ssrn.com/abstract=3835849 or http://dx.doi.org/10.2139/ssrn.3835849

Jaehan Ahn

Northeastern University - Accounting Group ( email )

404 Hayden Hall
360 Huntington Ave.
Boston, MA 02115
United States

Udi Hoitash (Contact Author)

Northeastern University - Accounting Group ( email )

360 Huntington Ave.
Boston, MA 02115
United States
671-373-5839 (Phone)

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

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