Counter-Factual Evidence That Revenue Recognition Footnotes Are Not Very Informative and Useful

• In Event: Financial Accounting and Reporting

Abstract

Abstract

For revenue recognition footnotes to be informative to users, they need to adequately describe GAAP-complaint methods and (the counter-factual) not be so broad or ambiguous to also describe non-GAAP complaint revenue recognition footnotes. We investigate how the extent to which revenue recognition footnotes changed regarding financial statements that had to be restated because the revenue recognition method failed to be considered GAAP-compliant. We identify earnings restatements during our analysis period and analyze the changes in the revenue recognition footnote across four points in time surrounding the financial statement that had to be restated (using the 10-K filings available on the SEC Edgar website. The results of our analyses infer that investors’ concerns regarding footnote disclosures being ‘boilerplate’ and of little use in understanding how revenue is actually recognized are likely appropriate.

Authors

• Yu-Ho Chi, University of Tennessee at Martin

• David A. Ziebart, University of Kentucky