The Effects of ASC 606 Retrospective Adoption on a Firm's Information Environment

45 Pages Posted: 18 Dec 2023

See all articles by Petrus (Petri) Ferreira

Petrus (Petri) Ferreira

Rice University

Junyoung Jeong

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Date Written: June 27, 2023

Abstract

This study provides evidence that retrospective adoption of an accounting standard improves the ability of investors and other financial statement users to assess a firm’s relative performance in the years surrounding adoption. In particular, we find that in the year following adoption of ASC 606, analysts’ revenue forecasts of firms that retrospectively adopt the standard exhibit greater accuracy and agreement and higher stock price liquidity, relative to firms that do not retrospectively adopt the standard. Additional findings show that analysts use less ambiguous language on earnings conference calls, increasing our confidence that analysts benefit from retrospective adoption. Post-adoption revenue response coefficients are larger for retrospective adopting firms, suggesting their investors can more easily interpret revenue at the earnings announcement. Our study’s findings potentially are useful to the FASB’s post-implementation review of ASC 606 and could help the FASB assess the merits of mandating retrospective adoption for future accounting standards.

Keywords: ASC 606, retrospective adoption, within-firm comparability, FASB

JEL Classification: G14, G18, M41, M48

Suggested Citation

Ferreira, Petrus H. and Jeong, Junyoung and Landsman, Wayne R., The Effects of ASC 606 Retrospective Adoption on a Firm's Information Environment (June 27, 2023). Available at SSRN: https://ssrn.com/abstract=4653379 or http://dx.doi.org/10.2139/ssrn.4653379

Petrus H. Ferreira

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

Junyoung Jeong

University of North Carolina (UNC) at Chapel Hill - Accounting Area ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Wayne R. Landsman (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

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