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US changes accounting rules for certain gadgets
By Jessica Mintz |
September 26, 2009, Saturday
|
Print Edition
Print Edition
UNITED States regulators approved changes to accounting rules on Wednesday that in the short term will make sales and profits seem higher at technology companies selling certain gadgets that blend hardware and software.
Under the old rules, companies like Apple Inc had to spread revenue from the sale of an iPhone over two years, the estimated useful life of the device. That's because when Apple sells an iPhone, it agrees to provide software updates in the future.
Existing accounting rules require many software companies to divide up sales over the length of licensing contracts; until now, companies with hybrid hardware-software products were also guided by those standards.
The Financial Accounting Standards Board's latest changes mean that Apple, plus other smart-phone makers, telecommunications equipment makers, semiconductor equipment manufacturers and a host of others, will be subject to a less onerous accounting standard.
The new rules let Apple "unbundle" iPhone hardware from its software and report the hardware sales up front. That makes it easier for investors to see how Apple did in any given period.
In the last quarter, for example, Apple said if it were allowed to account for iPhone sales all at once, its sales would have been 17 percent higher and its profit would have been boosted by 58 percent.
The accounting rules go into effect in the middle of next year.
Under the old rules, companies like Apple Inc had to spread revenue from the sale of an iPhone over two years, the estimated useful life of the device. That's because when Apple sells an iPhone, it agrees to provide software updates in the future.
Existing accounting rules require many software companies to divide up sales over the length of licensing contracts; until now, companies with hybrid hardware-software products were also guided by those standards.
The Financial Accounting Standards Board's latest changes mean that Apple, plus other smart-phone makers, telecommunications equipment makers, semiconductor equipment manufacturers and a host of others, will be subject to a less onerous accounting standard.
The new rules let Apple "unbundle" iPhone hardware from its software and report the hardware sales up front. That makes it easier for investors to see how Apple did in any given period.
In the last quarter, for example, Apple said if it were allowed to account for iPhone sales all at once, its sales would have been 17 percent higher and its profit would have been boosted by 58 percent.
The accounting rules go into effect in the middle of next year.
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