Accounting rule change could favour Apple and iPod touch owners

Stephen Withers
Tuesday, 15 September 2009 04:12

Opinion and Analysis

For every 24 iPhones sold in a month, Apple only gets to recognise revenue equivalent to one unit that month. Apple believes the effect on its bottom line causes (at least some) investors to undervalue the company.

Consequently, Apple publishes two sets of results - one complying with the accounting rules, another adjusted to reverse the effect of subscription accounting.

So for the quarter ending June 27, 2009, Apple's net income was officially $US1.23 billion. Removing the effect of subscription accounting on costs and revenue causes that to soars to $US1.94 billion. That's a big difference.

But just as subscription accounting dampens the effect of rising iPhone sales on Apple's results, it would also smooth out any drop in volume.

So it could be argued that subscription accounting suits Apple investors with a 'buy and hold' strategy, but disadvantages traders who rely on volatility to make profits. After all, changing the way you account for a business's activities doesn't change the reality.

Anyway, the reason for all this discussion is that the US Financial Accounting Standards Board (FASB) is reportedly considering a change that Apple and other tech companies including TiVo and Xerox have been lobbying for.

While the removal of the requirement to use subscription accounting in these circumstances has apparently been backed by the relevant FASB task force, final approval is unlikely before November.