Wednesday, January 21, 2009

Connect the Dots - Apple's use of deferred accounting for iPhone

How about's Day 2 of the Obama administration and there is already change in my world!!  That's right, I'm actually going to write about accounting in a positive light. I'm not exactly sure why accounting frustrates me more than something like strategy, but I suspect that it's because accounting seems to flip-flop between defined rules and interpretive rules. Or maybe it's just because all the examples in the accounting books are about industries I don't know very well, hence I don't commit myself to it as much.

To my pleasant surprise this morning, I found this article on iPhone deferred accounting.  Being somewhat of an Apple fanboy, I started reading it with interest and all of a sudden I start seeing all these accounting terms from this semester and last semester.   And they made sense.  And I kept reading, and reading, and reading.

After finishing the article, a couple thoughts came to mind:
  1. Some of the accounting concepts are starting to soak into my head.  I understood the viewpoint of the author, as well as actively thinking about the flipside from an investor vs. business manager vs. regulator perspective.  I know it seems small, but it was really a lightbulb moment for me.
  2. I've been around Silicon Valley companies for 15yrs now, so I'm fully aware of the hype-machines that they can create.  But I also live in today's economic situation and understand the problems that occur when exuberance and excess are practiced above all else.  So I found myself taking the viewpoint that while Apple's decision could be short-changing stock investors in the short-term, it seems like a much more responsible long-term decision to represent the true value of the company.  It matches revenues from the phone sale (device) with revenues from the service it provides (monthly fee from AT&T). And in today's economic situation, that sort of responsibility seems like a breath of fresh air.
One of the things I'm learning from this MBA program is there are times when you need to disconnect yourself from the underlying business and simply focus on the numbers, because otherwise you allow subjectivity (or boredom, in my case) to creep into your analysis.  In this case, I got lucky that the subject and the concept held my interest.  But it also showed me that I need to keep paying attention in accounting...