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Standards Board Approves Changes to Subscription Revenue Accounting

Dow Jones Newswires reports that the Financial Accounting Standards Board (FASB) has given final approval to a change in accounting regulations that will allow Apple to recognize more of its iPhone and Apple TV revenue at the time of sale.

The change okayed by the Financial Accounting Standards Board helps companies that sell goods and services in bundles - like smart phones and other high-tech devices combining hardware and software, or home appliances that come with installation and service contracts.

Under current accounting rules, companies must often defer large portions of their revenue from such sales - recognizing them gradually over time, instead of immediately when the sale is made. The rule change would give companies more flexibility in crediting more of that revenue to their results upfront.

Apple has employed subscription-based accounting for its iPhone and Apple TV segments, which allows the company to provide free software updates over the two-year period considered to be the lifespan of the devices for such purposes. Apple does not use subscription-based accounting for its iPod line, a move which has required the company to charge users nominal fees for operating system updates on the iPod touch.

Apple Inc. (AAPL) is expected to be one of the major beneficiaries of the change, since it would dramatically change how the company reports revenues from its iPhone. Currently, Apple recognizes iPhone revenue over a two-year period, and said recently that overall revenues and earnings in its latest quarter would have been much higher if it didn't have to defer revenues for the iPhone and its Apple TV product. An Apple spokesman couldn't immediately be reached for comment.

While the change does not affect Apple's cash flow, it will allow the company to more accurately reflect its revenue in its quarterly financial statements. Preliminary approval of the accounting rule change had been given by a task force of the FASB early last week.

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31 months ago
I'm noticing Apple's stock is getting a bit of a bump out of this news today (up almost 2% now), which is kind of weird since this only affects how Apple reports their bottom line; it doesn't actually change how much they're bringing in. They had been reporting both "GAAP" and "non-GAAP" numbers for a while now.
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31 months ago
That Mazda ad with the little kid saying, "Zoom Zoom", now comes to mind. $250/share?? :cool:
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31 months ago
Why is appleTV considered subscription based? I have never used one, but isn't it basically a cross between a giant iPod and a (Front-Row-only-ish) Mac? I don't see how the subscription model works there.

I do, of course, see how it works with the iPhone (although I didn't think Apple got much, if any, anymore of AT&T's fees)--but hopefully this doesn't mean they'll start charging for iPhone updates, too. :D
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31 months ago
If they start charging for iPhone updates, then they better make some really DRASTIC changes/improvements with each one. 2.0 was big for the App Store functionality alone, but 3.0 simply brought changes that should have been there with 1.0.
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31 months ago

If they start charging for iPhone updates, then they better make some really DRASTIC changes/improvements with each one. 2.0 was big for the App Store functionality alone, but 3.0 simply brought changes that should have been there with 1.0.


I don't think that will happen, as this says they can report more of their sales upfront (not [necessarily?] all).

Of course, I only have an iPod touch, so we have to pay anyway. :D
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31 months ago
a move which has required the company to charge users nominal fees for operating system updates on the iPod touch.

Nominal?! Some of the updates have been pretty expensive!! Wasn't the one that added apps $20?
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31 months ago
could some one explain this in Simple english? lol

does this mean Cheaper or Free iPod updates? or iPhone updates now have to pay a update fee?
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31 months ago

While the change does not affect Apple's cash flow, it will allow the company to more accurately reflect its revenue in its quarterly financial statements.


According to Jim Kramer (Mad Money), he thinks this change will be huge:

http://www.benzinga.com/craig-jones/2009/9/15/jim-cramer-says-apple-aapl-will-skyrocket-50
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31 months ago
I am going to guess for the consumer, nothing changes.
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31 months ago

could some one explain this in Simple english? lol

does this mean Cheaper or Free iPod updates? or iPhone updates now have to pay a update fee?


for the average joe...this change has 0 impact. whatever something cost before will cost the same now.
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