BKAL 3063 INTEGRATED CASE STUDY

GROUP E (6)ACCOUNTING FOR THE IPHONE AT APPLE INC.

GROUP MEMBERS:

NORPADILAH BINTI MOHD ROSLANUDIN 224031

NUR FATIHAH BINTI ZAINAL LIM 221536

SITI FILZAH BINTI MUHAMAD NADZRI 221357

UMMI FADHILAH BINTI MANSOR 221410

Executive Summary

Apple Inc :

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

•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 INTRODUCTIONFinancial 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 PROBLEMGAAP

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 SOLUTIONSGAAP

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 SOLUTIONRecognize revenues when persuasive evidence of an arrangement exists, delivery occurs, price is fixed, and collection is probable.

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 isn’t collected.

It could do so in tandem with its next iPhone refresh by stating that third-iteration iPhone purchases will have to pay for future software upgrades as they become available.

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.