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

Although conceptual frameworks of the Financial Accounting Standards Board and the International Accounting Standards Board identify 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. We find that increased discretion results in an increase in the relevance of reported revenues without any evidence of a compromise to faithful representation. Overall, the results suggest that increased managerial discretion in revenue recognition is associated with an increase in the usefulness of revenues