Publication Type
PhD Dissertation
Version
publishedVersion
Publication Date
5-2023
Abstract
The new revenue standard (ASU 2014-09, codified in ASC 606 and ASC 340-40) establishes a comprehensive framework on accounting for contracts with customers and replaces most existing revenue recognition rules. The new guidance removes the inconsistencies and weaknesses of legacy guidance, while is more principles-based and requires more managerial judgements. Using as-reported data from structured filings to construct aggregate accruals that are potentially affected by the new revenue standard (i.e., sales-related accruals), I find that the new revenue standard increases the quality of sales-related accruals, as measured by future cash flow predictability. The increased cash flow predictability comes not only from the guidance on contract revenue (ASC 606) but also from the guidance on contract costs (ASC 340-40). The effects concentrate among firms conducting long-term sales contracts, especially over longer forecast horizons. Further analysis shows that the new revenue standard also increases the combined information content of financial statements and the capital market efficiency. However, the discretion under the new standard opens avenue for earnings management when firms face strong manipulation incentives.
Keywords
revenue recognition, sales commissions, accruals, principles-based standard, FASB, cash flow predictability, earnings management, relevance, accrual anomaly
Degree Awarded
PhD in Accounting
Discipline
Accounting
Supervisor(s)
CHEN, Xia
First Page
1
Last Page
98
Publisher
Singapore Management University
City or Country
Singapore
Citation
HE, HUIYU.
Moving towards principles-based accounting standards: The impact of the new revenue standard on the quality of accrual accounting. (2023). 1-98.
Available at: https://ink.library.smu.edu.sg/etd_coll/462
Copyright Owner and License
Author
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.