Accounting Rule Change May Affect Apple's Future Earnings Reports

Silicon Alley Insider reports that a change to accounting standards that received preliminary approval last week may alter the way Apple treats revenue from the iPhone and Apple TV. The issue relates to Apple's policy of recognizing revenue from the iPhone and Apple TV over a two-year period from the date of purchase, a policy developed to satisfy accounting regulations as Apple provides free feature additions and software updates to the devices beyond the initial purchase.

Consequently, Apple has instituted a policy of releasing two sets of earnings numbers each quarter, one official set using Generally Accepted Accounting Principles (GAAP) that parcels out iPhone and Apple TV revenue, and one set of non-GAAP numbers that includes all revenue as recorded on the date of purchase. For example, at its most recent quarterly earnings announcement, Apple reported official GAAP earnings of $1.23 billion on $8.34 billion in revenue, while the company's non-GAAP earnings came in at $1.94 billion on $9.74 billion in revenue.

The Emerging Issues Task Force of the Financial Accounting Standards Board has issued preliminary approval of a policy change that would allow Apple to officially recognize most of the revenue from iPhone and Apple TV sales at the time of purchase, setting aside only a small portion of the revenue deemed to be the value of future software upgrades for future recognition.

In a report last week, Credit Suisse describes an accounting rule change that may eventually allow Apple to book most iPhone revenue upfront. Doing so would not change the company's cash flow, so there would be no actual change in the theoretical value of the company or stock.

But the change would cause Wall Street analysts to jack up their earnings estimates, and it would significantly boost the company's reported earnings. This would make Apple's stock look much cheaper to unsophisticated investors. It might also, therefore, act as a catalyst for the stock.

The report notes that the rule change would affect only future sales, meaning that as Apple transitions to the new standard, its earnings would be somewhat inflated as the company recognized full revenue from new iPhone and Apple TV sales while still recording deferred revenue from sales in previous quarters made under the old standard.

Popular Stories

iOS 17

Apple Releases iOS 17.0.1 and iPadOS 17.0.1 With Bug Fixes, Plus iOS 17.0.2 for iPhone 15 Models

Thursday September 21, 2023 10:28 am PDT by
Apple today released iOS 17.0.1 and iPadOS 17.0.1 updates for the iPhone and the iPad, adding bug fixes to the new software. The iOS 17.0.1 and iPadOS 17.0.1 updates come just a few days after Apple launched iOS 17 and iPadOS 17. The software, which is build 21A340, can be downloaded on eligible iPhones and iPads over-the-air by going to Settings > General > Software Update. There is a...
iPhone 16 Mock Header With Dynamic Island

Skipping the iPhone 15 Pro? Here's What's Rumored for iPhone 16 Pro

Friday September 22, 2023 9:29 am PDT by
Are you skipping the iPhone 15 Pro and waiting another year to upgrade? If so, we already have some iPhone 16 Pro rumors for you. Below, we recap new features rumored for the iPhone 16 Pro models so far:Larger displays: The iPhone 16 Pro and iPhone 16 Pro Max will be equipped with larger 6.3-inch and 6.9-inch displays, respectively, according to Ross Young, CEO of Display Supply Chain...
Update Your iPhone 15 to iOS 17

Warning: Update Your iPhone 15 to iOS 17.0.2 Before Transferring Data From Another iPhone

Friday September 22, 2023 6:36 am PDT by
If you are unboxing an iPhone 15, iPhone 15 Plus, iPhone 15 Pro, or iPhone 15 Pro Max today, make sure to update the device to iOS 17.0.2 before transferring data to the device from another iPhone, or else you might encounter issues. iOS 17.0.2 is only available for the iPhone 15 lineup. Apple says the update fixes an issue that may prevent transferring data directly from another iPhone...
Apple Watch Ultra 2 double tap gesture 230912

watchOS 10.1 to Enable Apple Watch's New 'Double Tap' Gesture

Thursday September 21, 2023 12:52 pm PDT by
The new Double Tap gesture for the Apple Watch Series 9 and the Apple Watch Ultra 2 will be enabled starting with watchOS 10.1, according to Marques Brownlee, host of the popular tech-focused YouTube channel MKBHD. The first beta of watchOS 10.1 will likely be available by next week, and Apple announced that the software update will be released next month. Brownlee shared his impressions...
emojipedia 15 1 emoji

Emoji Coming to Future iOS 17 Update Include Shaking Head, Brown Mushroom, Lime, Phoenix and More

Tuesday September 19, 2023 12:43 pm PDT by
As Apple was announcing new iPhone models last week, the Unicode Consortium was officially approving new emoji characters that are set to be added to smartphones starting in 2024. Mockup of new emoji from Emojipedia Approved Unicode 15.1 emoji include phoenix, lime, an edible mushroom, shaking head vertically (as in a "yes" nod), shaking head horizontally (a "no" head shake), and broken...
iPhone 15 Pro Fingerprints

Apple Says Fingerprints Can 'Temporarily Alter the Color' of iPhone 15 Pro's Titanium Frame

Thursday September 21, 2023 2:48 pm PDT by
In a support document updated today, Apple indicates that fingerprints might "temporarily alter the color" of the titanium frame on the iPhone 15 Pro and iPhone 15 Pro Max. Fortunately, Apple says this is not a permanent condition, as the fingerprints can be wiped off just like on any other iPhone to restore a clean finish. "For iPhone 15 Pro and iPhone 15 Pro Max, the oil from your skin...