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.

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• Keyword(s):
• accounting 109

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