In Plain English
could some one explain this in Simple english? lol
does this mean Cheaper or Free iPod updates? or iPhone updates now have to pay a update fee?
The bottom line is that this probably does not mean either free updates for the iPod Touch, or paying for iPhone updates. However, this is might be a big win for Apple shareholders.
I'll try to explain this as simply as possible. Be warned that this is just my interpretation of accounting rules; I'm not an accountant. Don't base business decisions on anything I say. Also, this is gonna be long, because this stuff is pretty complex.
There are two major forms of accounting in use today: cash accounting and accrual accounting. Cash accounting is simple: you just count how much money (and property) you have. But anyone with a checkbook knows that your current balance doesn't always reflect how much money you actually have available. If you have $1000 in your checking account, and you write a check for $100, then you really only have $900 left to spend - even if the check hasn't been cashed yet.
Accrual accounting is used by most public companies, including Apple. Accrual accounting is how companies "balance their checkbooks", so that they can accurately report their financial condition.
Let's say that you go to an Apple Store and order a new MacBook on September 1st. But it's on back-order and won't get to you until October 15th. Apple will take your money now, but accrual accounting says that that money doesn't actually "count" - Apple can't include its profit from that sale in its financial documents, because the sale isn't complete yet. Apple can only record the profits from the sale when you get what you paid for. So even though Apple had your cash on September 1st, the accounting rules say that Apple can only record the sale on October 15th.
What would happen if Apple recorded the sale on the 1st? Well, Apple's checkbook wouldn't be balanced: Apple received your cash, but it still owes you a MacBook. The easiest way to deal with this is for Apple to record the sale as though it happened on October 15th, even though Apple had your cash on September 1st.
The idea here is to keep companies from inflating the amount of short-term profits they report. If we didn't have this rule, then companies could take money for products they haven't made yet, and inflate their (reported) profits in the short term.
Product manufacturer's are able to add features for any product at any time for any price they set, including ZERO!
Actually, that's not true - not any more.
Since the WorldCom and Enron scandals, some new (and quite strict) accounting rules were put in place for US companies. One of these rules says that, if you make substantial changes to a product after it ships, you can't record all of your profits at the time of the initial purchase - you have to record some of them when you change the product.
Again, the idea is to keep companies from inflating the amount of profits they report. Let's say that a car dealer sold you a car on September 30, but the car had no engine. The dealer said they would install the engine for you as a "free update" on October 1st. Now, should the dealer record the profits from the sale in their September numbers, or their October numbers?
Without this rule, the dealer could record all of the profits for the sale in their September numbers. But that's clearly wrong - the car won't work until it has an engine, so the dealer should have to record at least some of the profits in their October numbers, right?
Under the new rule, the only way the dealer can record all the profits in their September numbers is if they charge you for the engine when they deliver it to you in October. And they have to charge you more than, say, a penny or a dollar - they have to charge you a realistic amount.
If the dealer doesn't want to charge you for the engine, they can still record part of their profits in September, but they also have to record some of their profits in October, because they made a significant change to the product in October.
Now, back to Apple. Apple records every iPod sale - including every iPod Touch sale - as of the time that you receive the iPod. That means if you buy (and get) an iPod on September 1st, Apple records the profits for that sale as though the sale happened on September 1st.
For the 'normal' iPods, this works fine, because those devices don't change much over their lifetimes. But the iPhone and iPod Touch will change significantly over their lifetimes as Apple introduces new software updates. According to the accounting rules, iPhones and iPod Touches are treated like the car without the engine. So Apple has two options: either record part of their profits later, or charge for updates.
That may not make intuitive sense, but that's how Apple interprets the accounting rules - and it is a legitimate interpretation. Remember, accounting rules are designed to prevent fraud, not to make sense.
For the iPod Touch, Apple has chosen to record all of their profits when you receive the iPod, and charge a "reasonable price" for updates. For the iPhone, Apple has chosen to record their profits later - in most cases, a
lot later - and provide updates for free.
For example, let's say that you buy an iPhone 3GS for $200. In order to comply with this accounting rule, Apple spreads that $200 out over 24 months, recording $8.33 each month.
Apple doesn't want to spread out the $200, but it's the only way to keep iPhone updates free. Why am I sure that Apple doesn't want to spread out the sale? Because it's not good for their stock price. Remember, this rule was designed to keep companies from recording profits too soon - but in the case of the iPhone, this rule works
too well. Apple's "checkbook" has become unbalanced the other way - the company has made literally billions of dollars in iPhone sales that they can't take credit for yet.
The change to the accounting rule that has just been approved makes it so that companies like Apple don't have to spread out the sale evenly. For example, if you buy that iPhone for $200, under the new rule, Apple could record $150 of that sale right when you bought it (instead of only recording $8.33), and spread out the next $50 over two years - while still providing updates for free.
What that means is that each iPhone sale has a bigger impact on Apple's short-term financial reports. Specifically, the short-term financial reports will improve, probably by quite a lot. And since short-term financial reports are an important part of a company's stock price, there's a good chance that this change will cause a big up-swing in Apple's stock price once it starts to have an effect - probably in 3 to 6 months.
Note that this is not investment advice, financial advice, accounting advice, or any other sort of advice. This is the ramblings of a guy on the Intertubes who knows a bit about accounting. Don't use anything I've said here to make any sort of decision with your - or anyone else's - money!
tv OS updates to users free of charge.