Apple pushes to change subscription accounting rules
By Nilay Patel 
posted September 14th 2009 6:58PM
posted September 14th 2009 6:58PM
Apple's pretty famous for using subscription accounting for the iPhone and Apple TV as a way to bend the rules and offer free software updates after purchase -- basically, instead of putting all the money from the sale on the books at once, the company's accountants spread the revenue out over two years, extending the "transaction" to cover upgrades. That's great for iPhone owners, but it's not so great for Apple or its investors, since the company's stock price doesn't always reflect the true amount of iPhone money coming in -- in fact, Apple earnings reports now include a second, unofficial balance sheet that does away with subscription accounting to show off the real numbers. Yeah, it's confusing, but it might finally be about to change, since the Financial Accounting Standards Board just tentatively approved new rules that could allow Apple to do away with subscription accounting and still deliver free updates. That means Apple's quarterly earnings will now feature much larger official revenue and profit figures -- last quarter's official revenue was $8.34 billion, while the unofficial number was $9.74 billion -- the lawyers and accountants will be happy, and we'll still get free iPhone updates. Good deal all around -- except for iPod touch owners, who will still have to pay $9.95 and not get a camera.[Via Yahoo]
What !?
What board !?
Are you saying it is illegal to give things away or provide free upgrades to existing customers !?
What the hell is going on here !?
Greedy bastards
As a business major I have always found Apple's accounting practices to be pretty self serving. They claim that they must charge to provide a software update to nlock new features because GAAP requires it, but none of their rivals charge for updates and they are just fine with the SEC. Charging for unlcoking hardware already installed on a MBP or adding features to your PMP is just plain crap. Microsoft can get away with updating 1st gen Zunes when the new version came out, Adobe adds new updates regularly to Photoshop to handle RAW files from new cameras, and neither of these two companies takes the cop out that GAAP requires them to nickle and dime their customers.
Apple updated iPods with new features without charge as well - more a of a Zune parallel. I think Apple felt they had to distinguish new software/firmware updates from updates that added functionality or enabled new hardware capability.
They've had a couple of small charges to enable wireless hardware changes on laptops before ...
Thanks Apple,
I'm working on my bachelors and gonna get my CPA.
More confusion = job security for a future accountant!
After all of this time, still no tech journalist can be bothered to actually investigate WHY Apple would choose to expose the selection between subscription and non-subscription accounting to the consumer. I can't think of another case, especially not for products as closely related in the consumer's eye as the iPhone and the iPod Touch which anyone could have anticipated would cause much angst and confusion among consumers.
No, just pasting a description of what subscription accounting is does not explain the cases where it was and was not chosen.
No, just squawking "SarbOx! SarbOx" does not explain anything either since SarbOx does not specify specifics like that.
I can't help but get the feeling that this is the equivalent of someone in the Apple finance department throwing a tantrum.
For the record, it's not really good new ALL around... Apple loses
the special treatment to "cookie jar" its current earnings for later
But then who cares about Apple?! Not a fanboy here
I read somewhere on TUAW or Engadget that the upgrade for iPod owners was now $4.95, and not $9.95??
Al long as there's injustice, there's a workaround to upgrade your iPod touch to
version 3.0 or 3.1 after that at no cost.
http://www.blogsdna.com/3706/how-to-update-ipod-touch-to-30-firmware-for-free.htm
"That's great for iPhone owners, but it's not so great for Apple or its investors, since the company's stock price doesn't always reflect the true amount of iPhone money coming in..." What? Not so great for the investors? Why do you think that the stock price doesn't always reflect the true amount of money coming in?
Any banker worth his or her salt knows that you use cashflows, not magical numbers concocted by accountants, to measure the worth of a company. It is called Discounted Cashflow Analysis. That is why earnings reports come with a cashflow statement... You know, the page that hides behind the income statement. That is what you actually use to value a company.
As my finance professor aptly put it, "cash is king". These accounting changes will have absolutely no effect on the value of Apple's stock.
A couple of comments from an app developer:
- Apple don't let me charge for app updates. Does this mean that the feds will be coming after me for false accounting? No, it doesn't. Apple could make iPod Touch OS updates free if they wanted to.
- The fact that they are not free makes life more difficult for me. About 5% of my app's users have not updated to 3.0 (presumably mainly iPod touch owners). So I can either make apps that are backward compatible (which involves a lot of extra testing), or I can drop support for those 5%. It's a hard decision.
I find the $5 for 3.1 especially annoying, since it has so few new features.