An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Marcus L. Caylor
University of South Carolina

Abstract: I examine whether managers are strategic in recognizing revenue in a period following the enactment of Staff Accounting Bulletin (SAB) No. 101. More specifically, I examine whether managers use discretion in two accrual accounts related to revenue recognition: accounts receivable and deferred revenue. My results show that managers delay recognition of revenue using both accounts receivable and deferred revenue when pre-managed earnings exceed benchmarks by a large margin, and accelerate the recognition of revenue using both accounts when pre-managed earnings just miss or miss benchmarks by a large amount. I document the prevalence of accelerated revenue recognition, and show that meeting or just beating the annual consensus analyst forecast is where the most cases of suspected accelerated revenue recognition occur. My results suggest that managers use discretion in revenue recognition to meet earnings benchmarks, and still use grey areas in revenue recognition subsequent to SAB 101.

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