Variable Considerations in ASC 606, Earnings Management and Business Continuity during Crisis

Mohammed M. Yassin, Dea’a Al-Deen Al-Sraheen, Khaldoon Ahmad Al Daoud, Mohammad Alhadab and Farouq Altahtamouni ()
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Mohammed M. Yassin: Accounting Department, Faculty of Business, Al-Zaytoonah University of Jordan, Amman 11733, Jordan
Dea’a Al-Deen Al-Sraheen: Accounting Department, Al al-Bayt University, Mafraq 25113, Jordan
Khaldoon Ahmad Al Daoud: Accounting Department, Yarmouk University, Irbid 21163, Jordan
Mohammad Alhadab: Accounting Department, Al al-Bayt University, Mafraq 25113, Jordan
Farouq Altahtamouni: Financial Sciences Department, Applied College, Imam Abdulrahman Bin Faisal University, P.O. Box 1982, Dammam 31441, Saudi Arabia

IJFS, 2024, vol. 12, issue 1, 1-17

Abstract: The Financial Accounting Standards Board (FASB) released Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers”, with the aim of enhancing transparency to provide fairer representation and inhibit the misuse of revenues to manipulate earnings. During COVID-19, variable considerations in ASC 606 were used to manage earnings as a tool to help firms survive. The study aimed to test the mediating role of earnings management in influencing the effect of variable considerations in ASC 606 on the continuity of the firm. An online questionnaire was sent to financial reporting preparers in US public shareholding firms; 403 valid questionnaires were received. The results of PLS-SEM revealed that crises such as COVID-19 have highlighted the way in which variable considerations in ASC 606 were exploited to manage firms’ earnings to ensure their survival. Companies resort to showing their best financial performance, beautifying its financial reports by manipulating profits, using flexibility in accounting policies, but this may negatively affect the country’s entire economy by collapsing companies and creating more financial crises that cannot be easily addressed.

Keywords: variable considerations; “Revenue from Contracts with Customers”; earnings management; ASC 606; going concern; COVID-19 (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2024
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