Question

In: Accounting

Select a publicly traded company that had an accounting change during the reporting year. Then, complete...

Select a publicly traded company that had an accounting change during the reporting year. Then, complete the following:

Obtain the 10K report of the company for the immediate past year.
Provide a summary of the corporation’s primary operations.
Describe the different sections of the annual report.
Explain the key items covered in the financial section of the report.
Discuss the accounting change the entity reported during the year.
What impact did the change have on the financial statements.
Describe in your words the note disclosure the corporation made due to the accounting change.

Expert Solution

I have obtained the latest 10-K filed by Apple Inc. The same can be referred from SEC EDGAR website.

Summary of the corporation’s primary operations:

Apple Inc designs, manufactures and markets smartphones (iPhone), personal computers (Mac), tablets (iPad), wearables (AirPods, Apple TV, Apple Watch, etc.) and accessories, and related services (digital content and streaming services, iCloud, etc).

Different sections of the annual report:

Following are the different sections of the annual report:

Business (describes the primary areas of operations of the company)
Risk factors (describes the different types of risks faced by the company such as regulatory changes, technological changes, etc)
Legal proceedings (describes the legal cases instituted by and on the company)
Financial data (describes the financial statements and related notes, changes in and disagreements with accountants, etc)
Directors, Executive officers and Corporate Governance (describes the corporate governance initiatives of the company)
Executive compensation (describes the amount of compensation that is paid to the executives of the company)
Principal accounting fees and services (describes about the fees paid to auditors for audit and non-audit services)

Key items covered in the financial section of the report:

The following are the key items covered in the financial section of the report:

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (describes where is the stock of the company traded, the number of shares sold and repurchased by the company, etc)
Selected financial data (describes the earnings per share, both basic and diluted)
Management’s Discussion and Analysis of Financial Condition and Results of Operations (describes the performance of the company categorizing it into sales product wise, segment wise, etc)
Quantitative and Qualitative Disclosures about Market Risk (describes and quantifies the different types of financial risks faced by the company such as interest rate risk, foreign currency risk, etc)
Financial statements and Supplementary data (provides in depth financial statements such as income statement, balance sheet and statement of cash flows of the company)

Accounting change the entity reported during the year:

Change in revenue recognition - The company used to report the amortization of Maps, Siri and free iCloud services in 'net sales of products and services'. Now the company is reporting it under 'net sales of services'
Change in income taxes - The company is required to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs

Impact of the change on the financial statements:

Change in revenue recognition - Products and Services net sales for 2018 and 2017 were reclassified to conform to the 2019 presentation
Change in income taxes - The Company recorded $2.7 billion of net deferred tax assets, reduced other non-current assets by $128 million, and increased retained earnings by $2.6 billion on its Consolidated Balance Sheet

Describe in your words the note disclosure the corporation made due to the accounting change:

The company has given the details of the accounting changes it has adopted due to various updates from FASB. It has mentioned the impact those changes had on the presentation and financials of the company. The company has changed the reporting format for amortization of its value added services. Earlier it was clubbed along with the sales of products, however after the update they have reclassified it into sales of services. This led to reclassification of sales of products for previous years. This was merely presentation change and had no financial impact. There was an update regarding measurement, recognition and presentation of financial instruments, but the company had no material impact so a mere statement was provided for it. The company adopted the change for reporting of income taxes which resulted in creation of deferred tax assets and reduction in non-current assets of the company. It also increased the retained earnings of the company for the year. All the financial impacts are given effect to in the financial statements and the same is disclosed in the notes.

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