The Impact of Managerial Discretion in Revenue Recognition: A Reexamination*

Abstract

Although the FASB and IASB conceptual frameworks identify relevance and faithful representation as the fundamental qualitative characteristics of useful information, prior research suggests that revenue recognition accounting standards that restrict managerial discretion resulted in improved faithful representation but reduced relevance. We use the adoption of Accounting Standards Update (ASU) 2009‐13 and ASU 2009‐14 to examine the effects of increased managerial discretion to accelerate revenue recognition in multiple‐deliverable arrangements; that is, transactions where vendors sell multiple products or services that are delivered at different points in time. We find that increased discretion 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. Although firms providing opaque adoption disclosure do not exhibit a decline in the faithful representation of revenues following the standards' adoption, these firms are more likely than firms providing transparent adoption disclosure to accelerate revenue recognition opportunistically following adoption when incentives are high. These results provide important evidence for 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.

Aplicación del modelo de sistema corporativo abierto para el manejo de la contabilidad administrativa del Grupo Empresarial SACSA

“…Hartlieb y Loy (2022) estiman que, al considerar la suavización de ingresos como la estrategia de administración de ganancias, las estrategias de ajuste de recursos subyacentes al comportamiento de los costos también podrían tener un impacto en las opciones de información de la contabilidad administrativa en términos financieros a largo plazo. Por su parte, Myers et al (2022) destacan la relevancia cualitativa de la información contable para efectos administrativos y un mejor manejo de la discrecionalidad en el control de ingresos y ganancias. Revelan que una mayor discreción da como resultado un aumento en la relevancia de los ingresos reportados, sin reducir la representación fiel, por cuestiones fiscales, legales o sociales.…”

CEO discretion and enterprise digital transformation

“…Magerakis argues that the positive relationship between CEO competence and firm cash holdings is weakened by firm-level managerial discretion, that is, managerial discretion may affect the amount of a firm's cash holdings [ 33 ]. Myers et al argue that increased discretion increases the relevance of reported income but does not reduce faithful representation [ 34 ]. Chen et al examine how managerial discretionary ‘chokehold’ affects firm investment efficiency (IE) [ 35 ].…”