Discretion in revenue recognition after ASC 606

We examine how managerial discretion under ASC 606 affects the reporting of revenue and related accounts for complex transactions. We find that firms most affected by the standard exhibit higher revenue growth and smaller changes in unearned revenue in the post-implementation period relative to control firms. Furthermore, earnings for these firms show a stronger positive association with concurrent annual returns, suggesting that the standard yields more informative financial reporting. However, we also document that when firms most affected by ASC 606 face analyst forecast pressure, they are more likely to meet or beat earnings and revenue targets, consistent with opportunistic use of discretion allowed in the standard. Our results highlight the trade-offs of principle-based standards, demonstrating that while discretion can enhance informativeness, it can also facilitate opportunistic reporting under certain incentives. These findings offer critical insights for practitioners, investors, and standard-setters, and underscore the need for researchers to account for such discretion in future empirical designs.