Standards board changes subscription accounting rules, Apple CPAs drunk with power
By Nilay Patel 
posted Sep 25th 2009 4:52PM
posted Sep 25th 2009 4:52PM
We'd heard Apple was pushing the Financial Accounting Standards Board to change the rules by which Cupertino's accountants reported iPhone and Apple TV revenue, and it looks like the effort was successful. The new rules allow Apple (and other companies like Palm) to report revenues on products that bundle hardware and software all at once, instead of parceling out the revenue over time using subscription accounting to enable free software upgrades. For investors, that means Apple's quarterly earnings reports will more accurately reflect the state of the company's cash flow, but we're more interested to find out if this means iPod touch OS updates will be free now, since the previous rationale for charging was that iPod revenue wasn't recorded using subscription accounting. We've got a feeling Apple's all too happy to take your $4.95, but we can hope, right?[Via MacRumors]
Oh boy man, you're gonna score an awesome ranking with that comment.
I always found it pretty ridiculous that apple charged for iPod touch updates.
I hope this brings that to an end, but I'd feel kinda bad for anyone who already paid for updates if they're going to be free going forward
I have a feeling they'll still charge.. if they didn't want to charge in the first place they would have made it a dollar.
Oh and Engadget your title is wrong.... Apple doesn't have CPAs. CPAs are outside people that get hired and work for an accounting firm.
The many huge software updates to Sony's PSP over the years have always been free.
Considering that the rule they pushed to have changed was one that they CHOSE FREELY TO USE... (mostly because on low volume niche startup product it allows deferring expenses as well as income from said project over time on the balance sheet..
Not to mention that noone told Apple that they had to charge for touch updates that was a pure money grab.. this touch update charge will only go away if apple feels like making it go away.
David you are wrong about CPA's....CPA standands for certified public accountant....There are many people who are CPA's who do not work for a third party....ill bet 10 - 1 that Apple has CPA's in its Finance department
Large companies always have an internal audit function. I'd be very worried if this large of a company didn't have any CPAs overseeing their processes. Very worried.
Auditors are a third party that apple hires, which must be CPAs. They do not make the rules, they do not enforce the rules, they do not set Apples accounting policy. The accounting policies are the responsibility of Apple. All the auditors do is say if theyre in accordance with the law.
And i bet 1,000,000,000,000,000,000 dollars, Apple has at least 1 CPA. They probably have a bunch, a LOT of former CPAs.
But, often times, the CPAs refer to the external auditors.
I've always thought the iPod touch update charge was ridiculous as well, but I do work regularly with people in the financial community and the explanation made sense. Now I guess we will see whether this explanation was just an excuse for Apple to charge.
until you put two braincells behind it... and realized they were TELLING YOU exactly why they accounted for iPod touch differently.
YOU WIN!..
As an accounting major, whose mother is a CPA, and who has many friends and family in the financial side of business I'm going to have to disagree with those who said I'm wrong. Oh and thanks for telling me what CPA stands for, I totally had no idea!
CMA - Certified Management Accountant, a licensed accountant who works for a single company.
CPA - Certified Public Accountant, a licensed accountant who serves the general public rather than one particular company.
The whole point of having CPAs is to ensure ethical behavior by CMAs. Their job is to audit and make sure that companies reports are accurate and follow GAAP. Now sometimes accounting firms don't act ethically either, think Arthur Andersen, so that's why we have things like the SEC to enforce regulations.
There is no reason a CPA couldn't be working at Apple, the problem is they aren't who would be thrilled by this. It's the CMAs who are happy.
David Quote 1- "Oh and Engadget your title is wrong.... Apple doesn't have CPAs. CPAs are outside people that get hired and work for an accounting firm."
David Quote 2 - "As an accounting major... I'm going to have to disagree with those who said I'm wrong."
David Quote 3 - "There is no reason a CPA couldn't be working at Apple, the problem is they aren't who would be thrilled by this. It's the CMAs who are happy."
As an actual CPA, it is my independent opinion that you are either an imbecile that can some how manage to contradict yourself in a few sentences, or you are incredibly pedantic and have no friends. Either way, you should probably change majors.
Apple should dismiss any CPAs they might have and claim the 1,000,000,000,000,000,000 dollars from minorthing4. And give me a .002% cut for suggesting it, of course.
I don't expect them to change anything. It's still profit.
Wait, so if the justification for charging for iPod Touch updates was that they weren't using subscription accounting, and the change is that now the iPhone isn't either, shouldn't that mean that the iPhone updates will cost money now, rather than the other way around?
No the point is that they changed the rules. Before this, if they stopped the subscription accounting they would have had to charge, but now they don't. Did you even read the post?
what about ipod classic update nano ect all being FREE
someone should really git a class action going and sue the fuck out of apple ...
Do you guys really think that the Financial Accounting Standards Board has ANYTHING to do with what or how much apple charges for anything? Seriously? Also since when does engadget report of accounting methodologies? Oh wait, it relates to apple in some way, never mind.
But seriously guys, this only effects their stock. You're not going to benefit from any accounting changes.
Sad.
I believe the iPhone was actually only subscription based in its earlier days. Now AT&T buys them outright and subsidizes them, so Apple has been using the subscription accounting voluntarily to allow updates for the iPhone, and charge for the iTouch. All this means is that they can't use the same excuse. They never had to charge for iTouch updates.
I believe the idea is they still keep a *portion* of the revenue back, so, no, the iPod touch updates won't be free -- as their revenue was recognised as one lump sum. It might mean they now consider this variant of subscription accounting for iPods touch... but considering the bitching there'd be from people who bought theirs under the old system (and are too dense to understand the difference), I'll bet they'll keep it as it is.
The original interpretation of the accounting rule was probably too strict anyway. The matching principle requires that revenues be matched against expenses. Clearly most of the expense associated with the sale of most electronic devices is incurred prior to sale. So it would stand to reason that they should have been able to recognize most of the revenue when the sale took place. They should have been able to come up with a reasonable way to estimate the costs associated with developing updates to their devices, and just defer that amount.
Or they should have also been able to just record all of the revenue as well as a liability at the time of sale, the liability would be to recognize an amount of estimated expenditures Apple expects to incur developing the software updates over the life of the device.
I think this is about how they REPORT their numbers, not how they account for them.
Your accounting and your reporting are the same thing (unless you're cooking the books).
So let me try to see if i understand this. They would prefer the sales reflecting the entire profit in the same quarter as oppose to over a course of a 2 year with the iphone? So if iPhone sales start to decline, the sales figure would be reflect right away as well. IMO I'd rather go with the older business model. This way when sales start to decline. At least what they have sold would show some sort of revenue stream still coming in for about 2 years. If sales start to decline, it would give some leeway to work on improving sales. If they reported with the new accounting rules, i suppose they can get a larger bank loan. Am I getting this right?
There is still going to be a portion that has to be divided over the 8 quarters (2 years), but your right this could back-fire. The stock market wants to see constant earnings growth and if they can't increase the sales, this could hurt them. It's curious that they push for this when the iPhone has a lot of new competition and the margins on mp3 players have fallen dramatically. Then again, we live in a world where all people think about is the short term, so maybe it will help Apple. What Cramer said he thought about a stock bump is indicative of foolish investors thinking short term. Sales and earnings haven't changed, but just how you write them down on paper.
I'd expect Apple to drop the upgrade fee for Touches after this-their only plausible argument would be that the pricing of the Touch wasn't really set up to cover additional upgra.....nah....there isn't really any plausible argument for charging the fee going forward.
Selfishly, I'm hoping they drop the fee just to shut up the incessant whining.
I'm hoping they drop the fee so myself and all my friends who have refused to pay the upgrade fee upgrade our touche's instantly to shove it in Apple's face that we won their little $10 game and to prove that their crappy, minor updates weren't worth shit to us.
At least they´re including features in their updates.
Imagine if Microsoft charged money for every bugfix... ;)
Huh? You mean like how microsoft included wireless sync in a free zune update? Or added wireless access to the marketplace in another one? Or how they added games in another one? Or maybe the one where they overhauled the entire UI? All of these for all the Zunes going back to the original 30gigs?
Guess some people around here wouldn´t recognize a joke if it bit them in the ass.
Imagine how much Microsoft would charge for a BSOD fix. I am sure a ton of suckers would pay for it too lmao
BSOD? You need to seriously fuck up your system to even encounter those anymore.
Last time I had one of those some of my RAM was fried. Even "guru meditation" wouldn´t help in such a case.
That or, you know, you could also do nothing wrong and still get it http://venturebeat.com/2009/09/02/massive-memory-leak-uncovered-in-windows-7-release/
Ah, ok, sorry about that. There were 2 possible directions you were going with that.
@ridley182: Installing a rebranded Vista Service Pack is pretty much covered by that comment.
@ridley182: Hey, cool, you could get that with the original Leopard install too: http://support.apple.com/kb/TS1545. Oops.
MikeZ, you were joking while another was not, so this is not directed towards you.
This just shows what a farce the "Apple is charging for iTouch updates because of SOX" argument was. If you bought a bit of hardware, Apple charged you for a driver to enable N networking. Apple is a business, so they are entitled to charge for it, but to claim it was because of SOX is becoming clear that it was not correct. Then they started charging for updates to the iTouch, SOX was brought up again.But then Apple releases updates to AppleTV and iPhone, and they said that SOX did not apply because those were subscription devices. But then again, OSX updates were free, and there are no subscription fees to use the computer. So now if Apple is able to claim subscriptions during the quarter the user bought the phone, we are no longer guaranteed free updates.
But then ridley brings up the CHKDSK memory leak, while ignoring the multitude of bugs in older versions of iPhone OS for the iTouch that you did need to pay to upgrade for. What new features were added to iTouch 3.0 for 1G or 2G units, but to get bug fixes they need to pay. The 3G iTouch has an N networking chip. This is a chip people paid money for, but will we need to wait for the next software update, and pay for that update to enable a feature we paid for?
And they put $ in MS because they claim MS is greedy and all about money.
@Mark
I don't know what is sadder, the fact that 1) you are so desperate you are bringing 1 year old support articles about some obscure issue that may or may not apply anymore to counter my comment about Windows 7 BSODs or 2) that you apparently didn't even read the very same article you linked to, so that you could have found out, in time, that the issue you are referring to is caused by enhancement software, not the OS itself.
You don't have much of a life do you?
Jeeze, you just continuously miss the point, don't you? Just like that problem(which was a problem in the operating system that made it incompatible with said software), the one you mentioned will probably be fixed before the OS even hits for consumer use, if it hasn't been already(seems likely that it has, since there's been several updates already). Point being: OSX ships with bugs, just like Windows does. Trying to claim it's something that only happens with Microsoft is ridiculous.
well said MikeZ ... look at the last three updates to XP: Vista, Vista SP1, and Windows 7
What are they charging for the latest service pack? $200? $300? more?
Let's see, the last service pack was Vista SP2. Cost: $0. So you're only off by about $200 or $300 or more. How much did Apple charge for that last service pack?
Microsoft just isn´t creative enough.
Maybe they should add a shiny new interface to "shadow copies" and sell overpriced hardware for it. Although I´d swear I´ve seen that somewhere else. :D
@Mark
Most online stores say $270 less than what Microsoft is going to charge for theirs
@ridley182: Huh, that's odd. So Apple gives you $270 for upgrading? How about we stop playing this stupid game of calling new Operating Systems or massive improvements to existing ones service packs? By the way, ridley, do you often compare upgrade-only copies to full installation ones? On the same note: according to most retailers I'm seeing $118 more than what Microsoft is charging for theirs.
Wait, so, you want me to stop playing the stupid price game you started? Sure thing buddy. If you can't take it though you might want to not start them in the first place.
Hint: just because Microsoft prettied up Vista and told you it now called Windows 7 doesn't mean it's a brand new OS. Of course, you need at least half a brain to know that ;)
The game I started?
"well said MikeZ ... look at the last three updates to XP: Vista, Vista SP1, and Windows 7
What are they charging for the latest service pack? $200? $300? more?"
Do you need help with your reading comprehension? My post was a reply to that.
Hint: No, but the fact that they added new features that make, for example, networking immensely easier than on any other platform(HomeGroup), made it start up, shut down, and just generally run faster, with a much better optimized kernel, vastly improved the Media Center, which was already the best in class, along with all the other improvements made does mean it's a brand new OS.
"No, but the fact that they added new features that make, for example, networking immensely easier than on any other platform(HomeGroup), made it start up, shut down, and just generally run faster, with a much better optimized kernel, vastly improved the Media Center, which was already the best in class, along with all the other improvements made does mean it's a brand new OS."
Really? Going by what you are saying then Snow Leopard should also be considered a "brand new OS" Hypocrite much?
"the fact that they added new features that make, for example, networking immensely easier than on any other platform(HomeGroup), made it start up, shut down, and just generally run faster, with a much better optimized kernel, vastly improved the Media Center, which was already the best in class, along with all the other improvements made does mean it's a brand new OS."
Going by what you are saying, then Snow Leopard should also be considered a "brand new" OS. Hypocrite much?
Ignoring the double post: yes, I was being a hypocrite. Intentionally so, as well. The whole point of my original comment(and those that followed) was to point out how stupid it is to call 7 a service pack and to point out the hypocrisy of doing so. Again, you need to work on your reading comprehension.
I see. I am glad to hear you were being ignorant on purpose and not that you were actually ignorant. Actually I am not completely convinced but hey, I will take you word for it. Cheers.