New Revenue Recognition Standards' Effect on Apple


Taking a look at Apple’s 10k—the world’s largest company by market capitalization—helps users of financial statements understand how revenue recognition, and other accounting standard updates may affect a company. Additionally, it gives a glimpse into how Apple collects its massive cash hoard.

Apple footnotes that the new revenue recognition standards “the Company must adopt [include] ASU 2016-08, ASU 2016-10, and ASU 2016-12 with ASU 2014-09 (collectively, the new revenue standards)” and “will be effective for the company in its first quarter of 2019.”  

  • ASU 2014-09: Revenue from Contracts with Customers

  • ASU 2016-08: Principal versus Agent Considerations

  • ASU 2016-10: Identifying Performance Obligations and Licensing

  • ASU 2016-12: Narrow-Scope Improvements and Practical Expedients  

     

    No Material Impact Expected

Revenue consists of sales of hardware, software, apps, accessories, digital content, services and support contracts, which collectively brought in $216 billion of revenue. Changes to revenue recognition would be an area of great focus for the Cupertino giant. The fact it has addressed, and sorted through the accounting standard updates in its footnotes years in advance underscores its importance. Despite its compliance relevance, Apple “does not expect the adoption of the new revenue standards to have a material impact on its consolidated financial statements.”  

An article on investors.com Why Everyone from AT&T to Disney and Microsoft is Bracing for the Revenue Rule states that “FASB 606 will make revenue recognition consistent across U.S. industries. Guidelines specific to the software and defense industries, for example, are going away.”

Apple’s 10K speaks to how it accounts for “multi-element arrangements” based on “industry specific software accounting guidance.”  Luca Maestri, CFO of Apple in conjunction with the Board of Directors and Audit Committee will have the task of guiding their accounting and finance teams to full compliance with the new standard. Changes must be made and users of financial statements will track incremental changes, material or not. 

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 Sources:

 Apple's 10k fiscal year ended September 30, 2016

 http://files.shareholder.com/downloads/AAPL/2456063358x8143945x913905/66363059-7FB6-4710-B4A5-7ABFA14CF5E6/10-K_2016_9.24.2016_-_as_filed.pdf

 

 Why Everyone from AT&T to Disney and Microsoft is Bracing for Revenue Rule: by Reinhardt Krause, 

 http://www.investors.com/news/technology/fasb-606-revenue-accounting-hits-software-telecom/