STUDY

GROUP E (6)
ACCOUNTING FOR THE
IPHONE AT APPLE INC.
GROUP MEMBERS:
N O R PA D I L A H B I N T I M O H D R O S L A N U D I N

224031

N U R FAT I H A H B I N T I Z A I N A L L I M

221536

SITI FILZAH BINTI MUHAMAD NADZRI

221357

U M M I FA D H I L A H B I N T I M A N S O R

221410

Apple Inc :
Executive Summary

establish as the phone manufacturer and produce products such as smartphone, iPod
and also develop extraordinary application store .

touch user

undergone the rapid development on technical and design innovation about the software updates
announced the financial results for Quarterly of every year and using the subscription method of
Accounting in revenue recognition at early but in the fourth quarter of 2008 used Non Gaap financial
results and does not use the subscription method.
Issues: Apple Incorporation use GAAP and Non-GAAP reporting as attempt to disclose about their
quarterly results and share value.
Solutions:
Apple Inc should immediately cease giving GAAP-based earnings guidance and instead offer
guidance on adjusted earnings.
Apple also can implement the uses of Non-GAAP recognition because by using this method, it could
show how much a company is actually making in a particular period.

1.0 INTRODUCTION
Financial reporting is important to provide financial information about the reporting entity
To produce the reliable financial reporting Apple Incorporation prepared financial report
accordance to the GAAP which is include of the common set of accounting principles, standards
and procedures that companies use to compile in their financial statements.
The uses of the Non-GAAP earnings in this company in addition to the
required GAAP earnings, stating that the alternate figure more accurately reflects the company's
performance
The Securities and Exchange Commission (SEC) in U.S permits companies to present non
GAAP financial measures in their public disclosures as well as registration statements filed under
the Securities Act of 1933 (Securities Act) and periodic reports filed under the Securities
Exchange Act of 1934 (Exchange Act).

ANALYSIS OF
PROBLEM

STATEMENT OF PROBLEM
GAAP
Required to use subscription
method of accounting
Recognize revenues and product cost
on a straight line basis
- deferred revenue
- recognized over time
Only account for small portion of
actual sales.

Non-GAAP
How much a company is making
Without subscription method of accounting
Look more profitable than using GAAP

CAUSES OF THE PROBLEM

Opportunistic reasons
Apple Corporation exploiting chances
offered by immediate circumstances
without reference to a general plan.
use subscription accounting for the
solution to adopt for them to provide
free software updates to iPhone users
under GAAP accounting rules.
used Non-GAAP results "eliminate the
impact of subscription accounting,"
which is a strange way to describe
deferred revenue, unless the objective
is to convey stronger performance
regardless of accounting standards

The Power of Control in Top Management

Apple Incorporation use the power to make an agreement with the AT&T to
get benefit from the iPhone sales whereby they does not follow the mobile
carriers that provide subsidies to lower the purchase price of the new phone.
They tend to make a revenue-sharing agreement that gave Apple a share
of the subscribers monthly service fees.
Apple should realize the money when they get it. So if AT & T pays Apple
when a customer buys an iPhone for the entire length of the contract then
Apple should report the total amount. If AT & T gives Apple a check every
month then they should report what they got.

ALTERNATIVE SOLUTIONS
GAAP
Cease giving GAAP-based earnings guidance
and instead offer guidance on adjusted
earnings.
Start offering guidance on an adjusted basis
which a practice that several other tech
companies already employed. By doing this,
Apple would benefit in both the short and
long term.
Benefit in the short term - there are no
adjusted-earnings guidance expectations
that Apple would have to meet because there
are no adjusted-earnings consensus
estimates at the present moment.

Non-GAAP
It could show how much a company is actually making in a particular period.
Decided to provide its non-GAAP financial statements to show revenues without
the subscription accounting method which recognized the revenue at the point
of sale.
Apple should really consider is doing away with subscription accounting
altogether.

ALTERNATIVE OF SOLUTION
Recognize revenues when persuasive
evidence of an arrangement exists,
delivery occurs, price is fixed, and
collection is probable.
It could do so in tandem with its next iPhone refresh by stating that thirditeration iPhone purchases will have to pay for future software upgrades as they
become available.

Reflects the economic reality

because it accounts for actual
instances where sales cannot be
recognized, such as when deliveries
are lost, subscriptions are cancelled,
or when payment isnt collected.

iPhone revenue would be amortized under subscription accounting while next

generation iPhone revenue would be recognized at the point of sale in the
quarter in which the sale occurs.

RECOMMENDED SOLUTIONS
Non-GAAP
Benefit the company instead of shareholder and customer.
Easy to predict the performance in future.
It could show how much a company is actually making in a particular period.