Deferred Revenues and the Matching of Revenues and Expenses*

Prakash, Rachna; Sinha, Nishi

doi:10.1111/j.1911-3846.2012.01164.x

Cited by 39 publications

(19 citation statements)

References 28 publications

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“…Based on this evidence, Dichev and Tang attribute the decline in matching mainly to accounting‐related factors such as the shift in accounting standards away from matching as the foundation of financial reporting and toward a balance sheet‐based model. Prakash and Sinha () find that the passage of SAB101 in 2000 resulted in an increase in recognition of deferred revenues, potentially reducing matching after 2000.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…One view is that the decline arises from changes in accounting standards, such as a shift from an income‐statement approach to a balance sheet approach to determine earnings (Dichev and Tang ), and the passage of Staff Accounting Bulletin No. 101 (SAB101) in 2000 that resulted in increased recognition of deferred revenues (Prakash and Sinha ). Based on this view, these accounting changes led to deterioration in the quality of accounting information, which undermines the standard setters' objective of making accounting information more useful.…”

Section: Introductionmentioning

confidence: 99%

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International Evidence on the Matching Between Revenues and Expenses

Shan

2015

Contemporary Accting Res

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This study investigates the time-series trend and determinants of matching between revenues and expenses in a sample of 42 countries. We find that the decline in matching documented by Dichev and Tang (2008) is not unique to the United States, but is a worldwide phenomenon. Our results show that matching is weaker in countries with (i) wider use of accrual accounting; (ii) a larger proportion of firms reporting significant special items; (iii) slower economic growth; (iv) more research and development activities; (v) larger service sectors; and (vi) stronger investor protection. We find no evidence that mandatory adoption of International Financial Reporting Standards affects matching. Changes in accounting and economic factors collectively explain the downward trend in matching. Overall, the results suggest that both accounting and economic factors are important determinants of matching over time and across countries.

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Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

International Evidence on the Matching Between Revenues and Expenses

Shan

2015

Contemporary Accting Res

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“…We propose that such impairments (and also associated reversals) should be classified as Type 3, because their informational properties are similar to items matched ex post. These items inform on how reliably underlying profit is being measured; for example, an impairment of PPE informs that the evidence‐based ex ante matching was in the event more uncertain than had previously been assumed by management (see also Prakash and Sinha ). The impairment losses thereby add meaning to the Framework's concept of “confirmatory value,” because they inform about the success of the accountant's initial typing of expenditures to minimize ex post mismatching, thereby informing ex post about the entity's capacity to report evidence‐based underlying profit (Lambert ).…”

Section: Income Statement Presentationmentioning

confidence: 99%

Moving the Conceptual Framework Forward: Accounting for Uncertainty

Barker

Penman

Linsmeier

et al. 2020

Contemporary Accting Res

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To meet the objectives of financial reporting in the IASB's Conceptual Framework, the “balance‐sheet approach” embraced by the Framework is necessary but not sufficient. Critical, but largely overlooked, is the role of uncertainty, which we argue defines the role of accrual accounting as a distinctive source of information for investors when investment outcomes are uncertain. This role is in some sense paradoxical: on the one hand, uncertainty undermines both the balance sheet (because uncertain assets are unrecognized) and the income statement (because mismatching is unavoidable). However, these inevitable accounting effects can be exploited to provide information about uncertainty, though not by a balance‐sheet approach alone. Rather, balance sheet recognition and measurement criteria are established by consideration of the impact of uncertainty on matching and mismatching in the income statement. This combination of balance‐sheet and income‐statement approaches enhances the communication of information to investors under conditions of uncertainty, thereby giving greater clarity and purpose in satisfying the objective of the Framework to provide information about “the amount, timing, and uncertainty of future cash flows.”

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“…Many of the likely predictors are similar to sales growth over inventory growth: the original papers showed marginal significance using statistical tests that are different than ours. Some were tested with regressions: sales growth over overhead growth (Abarbanell and Bushee 1998), sales to price Raines 1996, beta (Fama andMacBeth 1973), change in asset turnover (Soliman 2008), secured debt (Valta 2016), deferred revenue (Prakash and Sinha 2013). Others were tested in event studies: spinoffs (Cusatis, Miles, and Woolridge 1993), dividend initiation .…”

Section: Performance Of Individual Likely Predictorsmentioning

confidence: 99%

Open Source Cross-Sectional Asset Pricing

Chen

Zimmermann

2020

SSRN Journal

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Deferred Revenues and the Matching of Revenues and Expenses*

Cited by 39 publications

References 28 publications

International Evidence on the Matching Between Revenues and Expenses

International Evidence on the Matching Between Revenues and Expenses

Moving the Conceptual Framework Forward: Accounting for Uncertainty

Open Source Cross-Sectional Asset Pricing

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