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How Apple Benefits from New Accounting Math by Federal Accounting Standards Board (FASB)?
By Amarendra Bhushan for CEOWORLD Magazine Updated:September 25, 2009
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The recent proposed subscription accounting change has been given a gold star by the Financial Accounting Standards Board — voted 5-0 Wednesday to approve an accounting change that could boost the reported earnings, and the stock price, of dozens of Silicon Valley firms.
The new rules are expected to be especially beneficial to Apple (AAPL). They would put an end to subscription accounting on the iPhone, a balance-sheet sleight of hand that has depressed reported earnings — and confused investors — from the day the device hit the market.
Apple had lobbied heavily for the change, along with dozens of other firms, including IBM (IBM), Dell (DELL), Hewlett-Packard (HPQ), Cisco (CSCO), Palm (PALM) and Xerox (XRX).
The new rules will allow companies to recognize the revenue from devices that are part hardware and part software — like the iPhone — when the sale occurs, rather than spreading it out over many quarters. The changes aren’t mandatory for most companies until 2011, but Apple is expected to put them into effect with the start of its next fiscal year, which begins next week, Philip Elmer-DeWitt reported.
Current accounting rules require these companies and other to spread out the recognition of this revenue over a multi-year period, as software vendors are required to do.
The new rules go into effect for fiscal years beginning on or after June 15, 2010. Some companies may be allowed to apply the rules earlier.
Here’s how the Wall Street Journal explains it:http://online.wsj.com/article/SB125374225265535371.html
“The move wouldn’t change the total revenue and earnings a company reports over time, and the cash flowing into a company remains the same. But companies contend the change would better align their reported results with the true performance of their business.
“Apple Inc. is expected to be one of the beneficiaries of the new rules, because it would change how the company reports revenue from its iPhone. Currently, Apple recognizes iPhone revenue over a two-year period, and said recently that overall revenue and earnings in its latest quarter would have been much higher if it didn’t have to defer revenue for the iPhone and its Apple TV product.”
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