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The role of revenue recognition in performance reporting

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  • Alfred Wagenhofer

Abstract

This paper examines revenue and profit or loss recognition and how these measures provide financial information about companies' performance. First, I review academic literature that examines the importance of revenue in informing capital markets and in performance evaluation and discuss findings on revenue management. Second, I describe fundamental revenue recognition concepts developed in the academic literature based on the economics of risks involved in the earnings cycle. Third, I evaluate the new revenue recognition standard of the International Accounting Standards Board, which aims to state a single consistent criterion for revenue recognition. I argue that striving for a conceptually consistent standard is undesirable because the economic characteristics of earnings cycles differ across firms and so does the usefulness of information. Consistent with that, the new standard actually contains different recognition criteria, does not fully follow the asset-liability approach and, although the Conceptual Framework favours neutrality over conservatism, includes several instances of conservatism.

Suggested Citation

  • Alfred Wagenhofer, 2014. "The role of revenue recognition in performance reporting," Accounting and Business Research, Taylor & Francis Journals, vol. 44(4), pages 349-379, August.
    • Handle: RePEc:taf:acctbr:v:44:y:2014:i:4:p:349-379
    DOI: 10.1080/00014788.2014.897867
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    Cited by:

    1. Richard Barker & Anne McGeachin, 2015. "An Analysis of Concepts and Evidence on the Question of Whether IFRS Should be Conservative," Abacus, Accounting Foundation, University of Sydney, vol. 51(2), pages 169-207, June.
    2. Chii-Shyan Kuo & Jia-Jye Yu & Feng-Chen Chang, 2022. "Revenue recognition and channel stuffing in the Taiwanese semiconductor industry," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 19(3), pages 352-361, September.
    3. Kateřina Knorová, 2016. "Do Czech Companies Disclose Revenue in Accordance with IFRS Requirements?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2016(3), pages 69-84.
    4. Alberto Quagli & Elisa Roncagliolo & Gabriele D’Alauro, 2021. "The preparedness to adopt new accounting standards: a study of European companies on the pre-adoption phase of IFRS 15," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(3), pages 290-303, September.
    5. Viviana D'Angelo & Francesco Cappa & Enzo Peruffo, 2023. "Walking the tightrope: Circular economy breadth and firm economic performance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1869-1882, July.
    6. Carien van Mourik & Yuko Katsuo Asami, 2018. "Articulation, Profit or Loss and OCI in the IASB Conceptual Framework: Different Shades of Clean (or Dirty) Surplus," Accounting in Europe, Taylor & Francis Journals, vol. 15(2), pages 167-192, May.
    7. Kabir, Humayun & Su, Li, 2022. "How did IFRS 15 affect the revenue recognition practices and financial statements of firms? Evidence from Australia and New Zealand," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 49(C).
    8. Md. Rezaul Karim & Atia Ibnat Riya, 2022. "Compliance of disclosure requirements of IFRS 15: an empirical evidence from developing economy," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 19(3), pages 301-312, September.
    9. Philip Beaulieu & Louise Hayes & Lev M. Timoshenko, 2023. "Changes in accounting estimates: An update of priors or an earnings management strategy of “last resort”?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(3-4), pages 622-659, March.
    10. Wasan, Pratibha & Mulchandani, Kalyani & Mulchandani, Ketan, 2022. "Do changes in deferred revenue indicate future financial performance? Evidence from India," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 46(C).
    11. Yahya, Habeeb, 2023. "The role of ESG performance in firms' resilience during the COVID-19 pandemic: Evidence from Nordic firms," Global Finance Journal, Elsevier, vol. 58(C).

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