Apple Inc. Summary

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The essence of the debate:

| Pros| Cons|
GAAP| 1. Accurate because revenue is accounted when it happens in subscription model otherwise unearned 2. It could be argued that since the cash is realized right away, no matter which account (immediate or accrued), it has no impact on the economic value of the Apple shares. | 1. No revenue is realized even though the knowledge of a free upgrade is built into the product 2. AICPA SOP No. 97-2 is best suited for software or magazine subscription and not bundled hardware/software offering| Non-GAAP (based on IFRS)| 1. Gives a better revenue outlook because of immediate realization of a portion of the revenue 2. Eliminates the impact of subscription accounting (BUT IN WHAT WAY??)| 1. Subjective 2. Companies must comply with Regulation G for non-GAAP disclosure which adds a significant accounting burden: a. Create Non-GAAP supplement in addition to the GAAP accounting b. Use the most comparable GAAP measure c. Also provide a reconciliation of GAAP and Non-GAAP results like Table A 3. | Economic Reality| Which corresponds better to the economic reality? GAAP or GAAP with Non-GAAP supplement| What role should Apple Inc. play in changing the revenue recognition rules for smartphones?| Should they advocate for a Non-GAAP rule for recurring revenue streams and eliminate GAAP reporting for those recurring revenue streams? Or the Non-GAAP Reg G compliance suffices? Or something else?| What type of impact would a change in the reporting rules that allows companies like Apple Inc. to report smartphone revenue using their preferred method have?| Impact to what? If it the market then it may a significant impact because then people may be comparing apples to oranges when comparing two companies with similar offering but different reporting?You could argue that subjective reporting exists already so what’s the difference?What else?|

Case write-up:
1. How to distribute work?...
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