New accounting rules mean boost to Apple & others
Under the old rules, companies like Apple Inc. had to spread the revenue from the sale of an iPhone over two years, the life of the device. This is because when Apple sells an iPhone, is committed to providing software updates in the future.
The current accounting rules require companies to split software sales during the duration of the licensing contracts, until now, companies with the hardware of the hybrid software products is also guided by such rules.
The latest changes to the Financial Accounting Standards Board’s means that Apple, along with other smart phone manufacturers, manufacturers of telecommunications equipment, semiconductor equipment manufacturers and many others, are subject to an accounting standard, less onerous.
The new rules allow Apple “unbundle” their iPhone hardware software and hardware sales report in the lead. That makes it easier for investors to see what Apple did in a given period.
In the last quarter, for example, Apple said that, if allowed to account for iPhone sales at a time, its sales would have been 17 percent and its profit would have increased by 58 percent.
“A lot of people really follow closely the earnings reported as key performance measure of the company. A company may provide the disclosures, but people always go back to reported earnings,” said Jay Howell, a partner at accounting firm BDO Seidman LLP. Under the old rules, if the iPhone has a great quarter – good or bad – investors may not be able to say in the earnings report.
Howell said that Apple has yet to account for software revenues in time, but constitutes a small portion of total sales.
Changes in accounting rules to take effect by mid next year, although companies can put into use immediately.
The decision by the FASB also U.S. companies put on an equal footing with foreign competitors, which follow accounting rules. With the old rules, a rise of smart phones may seem to a non-US company to provide more in one quarter because the company only U.S. can burn a fraction of their income.
Apple also uses the standard prolonged revenue recognition for the Apple TV, a decoder that provides web content to televisions. However, the Cupertino, Calif., the company recorded sales of Macs and iPods at once, although also combine hardware and software.
That was a business decision, “said Howell. Because Apple sells support for Mac and iPod separately, meets the criteria of all-at-once accounting. For iPhone, because Apple does not want to buyers after a year and ask them to pay for support and upgrades, was obliged to spread the sales over time.