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Accounting change to boost Apple profits
Filed in archive Accounting by leon on September 17, 2009
Accounting change to boost Apple profits



Do accounting rules excite you? They probably have that effect on Apple shareholders. The Apple share price has hit a 52-week high after the Financial Accounting Standards Board brought in a tentative change to the accounting rules which would almost double Apple's reported profit. The rule change affects iPhone subscription accounting.

Under the old system, Apple had to report the revenue over two years. Apple wants to offer iPhone users free software updates but according to the accounting rules relating to the Sarbanes-Oxley Act, items that gain significant new functionality after the sale-due to a firmware update, for example -can't have the revenue recorded at the time of sale. In Apple's case, the revenue is reported over two years in a system called subscription accounting. Apple lobbied to have those rules changed.

Under the new tentative rules, those revenues can be reported earlier, which means the profits will be higher, which means the shares will accelerate. It's not that Apple is making more sales. getting a better cash flow or making a bigger profit. It just means different accounting rules will make the reported profit look a lot bigger. Still as commentator Henry Blodget says, it will do great things for investors by sending the Apple share price to the moon.

The debate about accounting shell games, however, will continue and are likely to come into the fore again if Apple hits on hard times. And when that happens, we can expect the FASB (or as I always call it, the Fake Accounting Standards Board), to be hauled over the coals again.

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Tags: accounting  Apple  apple  2009  change  accounting+change  boost+apple  apple+profits 
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