Apple Financial Accounting - Case Study Example

Paragraph no. 6 of Statement of financial Reporting Standards no. 48 states the criteria for recognizing revenue when right of return exists states that all the following exists: a) The seller's price to the buyer is substantially fixed or determinable at the date of sale, b) The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product, c) The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product, d) The buyer acquiring the product for resale has economic substance apart from that provided by the seller, e) The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer, f) The amount of future returns can be reasonably estimated.

This standard further states that the related sales and cost of sales not recognized at the time of the sale shall be recognized either when the return privilege has substantially or if those conditions are met whichever arrives first1. Further, the MacObserver article dated April 22, 2004 entitled TMO Reports - Apple Shareholder Meeting: Board of Directors & Auditors, In; Exec Salary Cap, Out(Chaffin, 1) stated that Apple Inc. retained its current external auditors, KPMG for the year 2004. This shows that the external auditors and Apple had complied with the engagement conditions established by both parties.

In addition, KPMG continues to do other non -auditing jobs for Apple, Inc. KPMG continues its management advisory services and other related accounting services to Apple. This only shows that the client - auditor relationship between Apple, Inc. and KPMG is beneficial to both parties2. II. Bring summary of the firm chosen.Apple computers was founded by Steve Jobs. He had worked hard to produce a product that tower over its competitors in the computer industry. He wanted to invent an insanely great computer.

Apple computers were then born. It continued to make revolutionary advances by introducing newer and better products. Apple is popularly known for introducing the first personal digital assistant called Newton. Its failure was successfully replaced by the Palm Pilot. This was an instant hit to the general public. Likewise, another Apple product, Mac, was also a very profitable success. The Mac clearly overpowered its competition in the computer market segment3. Currently, the company has been generating net profits amounting to $3,496 million as of October 2007.

Likewise, the company generated net income amounting to a lesser $1,989 for the year October 20064. Apple has many strategies implemented to maintain its lead in the computer sales segment. The company even offers low monthly payments, deferral of principal amounts due and other special offers to increase its sales and offers to keep its top spot in the computer world. The company also offers lease programs for people who cannot yet pay cash up front5.III. Subsectionsa. How does the firm classify and account for the ruleApple, Inc.

, is firm in its stand to classify and account for revenues in accordance with statement of financial accounting standards no. 48. One logical reason for this is that that external auditors, KMPG, would not back out from their yearly audit