Accounting board votes 5-0 for pro-Apple rule change
In the end, the vote was unanimous.
After months of lobbying by a stack of blue-chip high tech companies, the FASB — the entity that sets accounting standards in the United States — voted 5-0 Wednesday to approve an accounting change that could boost the reported earnings, and the stock price, of dozens of Silicon Valley firms.
The new rules are expected to be especially beneficial to Apple (AAPL). They would put an end to subscription accounting on the iPhone, a balance-sheet sleight of hand that has depressed reported earnings — and confused investors — from the day the device hit the market.
Apple had lobbied heavily for the change, along with dozens of other firms, including IBM (IBM), Dell (DELL), Hewlett-Packard (HPQ), Cisco (CSCO), Palm (PALM) and Xerox (XRX).
The new rules will allow companies to recognize the revenue from devices that are part hardware and part software — like the iPhone — when the sale occurs, rather than spreading it out over many quarters. The changes aren't mandatory for most companies until 2011, but Apple is expected to put them into effect with the start of its next fiscal year, which begins next week.
Although the rules don't change how much cash Apple actually collects, the impact on its perceived value could be dramatic. In the company's third fiscal quarter, for example, it reported earnings of $1.35 per share using the current generally accepted accounting principles (GAAP). Its so-called non-GAAP earnings, by contrast, were $2.14 a share — 58.5% higher. Under the new rules, reported earnings are likely to be close to or equal to those non-GAAP numbers.
A Mad Money report on the proposed rule changes last week sparked a rally that sent Apple shares up nearly 10.8 points (6.1%) in less than two days. Shares were up another 3.7 points (2%) Wednesday before falling back in late afternoon trading to close at $185.5.
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James- It is just the reverse – Apple will not charge iPod Touch users for software upgrades after this accounting change.
James,
Incorrect. Apple could have elected to go THAT route without an accounting rule change.
The accounting rule change means that Apple can account for the revenue at the time of sale IN SPITE OF THE FACT that they are not charging for the software.
I guess that's bad for iphone customers because we'll have to pay for OS upgrades like iPod touch users.
Apple's on a roll. They also kicked Palm's butt. See here:
http://www.internetnews.com/mobility/article.php/3840576/Tables+Turn+on+Palm+in+Fight+With+Apple.htm