The Financial Accounting Standards Board is about the change the way that some companies recognize revenue for the sale of hybrid products (story here). A hybrid product is one that is typically bundled with a service offering, and the old rules tied revenue recognition to the service instead of the product. A perfect example of this is the Apple iPhone, which is sold by AT&T as part of a two-year contract.
Under the current rules, Apple has to spread out the iPhone product revenue over eight quarters, the length of the AT&T subscriber contract. But the new rules, which are expected to affect Apple's financial statements in December, will permit immediate and total recognition of the product revenue at the time the subscriber contract is signed.
Had these new rules been in effect, Apple's recently disclosed third-quarter revenue would have increased by $1.4 billion and the commensurate net profit by over $700 million. The crowd in Cupertino will be sipping some well-deserved Cristal; it's not every day that you can grow revenues by almost 21% and earnings by 57%, all without hiring a single salesperson, placing a single ad, or increasing production by a single unit. Now that's paper money!
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