A Case Study Of Apple Company Essay


Elucidate the challenges of accounting for multinational corporations.



With the expansion of business at international level, it becomes necessary for multinational organizations to adopt the accounting and tax system which not only facilitates multination business but also help in resolving the disputes. Generally, MNCs deal with the issues of ambiguous, inconsistent and ever-changing tax rules. MNCs required effective tax and accounting system because of the following reasons:

  • Economic situations changed as per the country and the region, and there are number of organizations which are trying to recover from downturn from last few years and some organizations are entering into downturn. However, some organizations do not experienced weakness at all; in fact these organizations perform best in comparison of other companies. This happen because of the efficient and effective accounting systems adopted by the organization.
  • Efficient system of accounting is also required by those companies which conduct their business operations in global markets, and because of their operations they increase the competition in the market.
  • System is required to ensure that MNCs are meeting with the foreign tax regulations, and also at the national and local level.
  • Dealing with the issues of budget deficits, it is necessary ensures effective and highlighted sense of tax system in the organization. Accounting system which is not effective and efficient can result in downturn of the organization (Francois, Palepu, and Barley, 2010).

This paper discusses the accounting issues faced by multinational corporations, with the help of case study of Apple Inc. Structure of this includes, project objective, project scope, discussion. Lastly, paper is concluded with brief conclusion.

Project objective:

The main aim of this project is to understand the issues related to accounting faced by multinational organizations while conducting their business operations at global level. This project also states the accounting policies used by the companies for solving these issues. For understanding the concept of accounting issues in MNCs, we choose Apple Inc.

Project scope:

This project states the different accounting standards adopted by apple Inc. and issues faced by company while launching its products and handling the competition in the external market. This paper also states the accounting regulations and methods adopted by the organization to manage its internal environment.

Literature Review:

The main and most important function of accounting is to make records of all the transactions which are conducted by the organization, and process through which transaction is identified and qualified is known as bookkeeping. Bookkeeping is narrower in scope in comparison of accounting, and it includes only recording part.

Apple Inc. and its wholly- owned subsidiaries engaged in designing and manufacturing of personal computers, communication devices such as mobile, and portable digital music and video players. Apple is also engaged in selling number of different software’s, services, peripherals, and networking solutions. Product of the company is sold out at global level through the online stores, retail stores, its direct sales force, and third party wholesalers, resellers, and value-added resellers. 2017 already imposes various challenges and issues for accountants, but it seems many things are still left such as issues related to regulations and scrutiny. This report also highlights the key accounting issues that might be affecting the practitioners and organizations, and some of these issues are stated below:

Uncertain tax positions reporting- this term is commonly referred to as UTP, and accounting related to this term is clarified by FIN48 by recognizing the place of UTP in an enterprise’s financial statements. It stated that, MNCs must identify, measure, evaluate and disclose all the material uncertain tax positions for all the jurisdiction of tax that are federal, state, and foreign. It is very difficult for MNCs to identify, evaluate, measure, and report the uncertain tax positions because it includes analysis of new, existing, and changed tax positions.

It is recommended to the MNCs that they must take into account all the tax jurisdictions and also ensure that all the positions which are filing as well as all non-filing positions must be evaluated on the basis of applicable tax laws. Information related to UTP must be reported and updated on quarterly basis with the filing of the 10Q and 10K. Additionally, financial tax reporting requirements states that taxpayers are also required to disclose UTPs with their annual tax return filing.

For solving this issue, it is recommended to the companies which are engaged in international operations such as sales offices, distribution centers and foreign manufacturing facilities must access different FIN 48 UTP positions such as the existence of permanent establishments and requirements related to tax filing, audits of local tax authority and local tax statutes of limitations, Subpart F income and the use of foreign tax credits (Cliff Gunderson, 2011).

In 2008, Apple Inc. adopts different new and innovative accounting principles for fulfilling the requirement of accounting for uncertain tax positions. In lieu of these two principles, tax positions in the company are evaluated in a two-step process. Firstly, company determines the whether it is possible that tax position sustained upon the examination. In other words, if tax position meets the recognized threshold then it determines the amount of benefit in financial statements. Tax position is considered as large amount of benefit which is greater than 50% of realized amount after the ultimate settlement. After adopting these new principles, cumulative effect of the company that is change in accounting principle ultimately result in increase of retained earnings of $11million. Historically, company classified interest and penalties and unrecognized tax benefits as current liabilities.

Starting the process by adopting these new principles, company classified the non-current liabilities in the Consolidated Balance Sheets as gross interest and penalties and unrecognized tax benefits. It includes those gross interests and unrecognized tax benefits which are not expected by organization to receive within the period of one year. Total amount in terms of unrecognized tax benefits on the date of adoption is $475 million, and in case $209 million is recognized then it directly affects the effective tax rate of the company. In consolidated balance sheets, total gross unrecognized tax benefits of the company are considered as non-current liabilities of the company. In 2009, total amount of gross unrecognized tax benefits of the company was almost $971 million from which if $307 million would recognized then it directly affects the effective tax rate of the company (United States, Securities and Exchange Commission, 2010).

In 2009, United States Court of Appeals for the Ninth Circuit provides its decision in case law Xilinx, Inc. v. Commissioner. In this case, Court held that it was necessary that company includes the stock-based compensation in some particular transfer pricing arrangements entered between a U.S. company and its offshore subsidiary. Organization influenced with the decision of this case, and ensures that its liability in terms of unrecognized tax benefits was increased almost by $86 million, and equity of the shareholder decreased almost by $78 million by the year ended 2009.

After considering the above facts it can be said that policy of the company includes the interest and penalties in context of unrecognized tax benefits within the provisions of income taxes, and it did not change because organization adopted new accounting principles in lieu of uncertain tax positions in 2008. After the date of adoption of these new principles company had accrued $203 million as gross interest and penalties in relation to unrecognized tax benefits. During the period of 2009 and 2009 September, the amount of accrued gross interest and penalties was $291 million and $219 million, respectively. This amount was classified as non-current liabilities in the Consolidated Balance Sheets. During the period of 2009 and 2008, company recognized the interest expense in connection with tax matters of $64 million and $16 million, respectively. Apple Inc. is subject to taxation and also files income tax return in the U.S. federal jurisdiction and also in many state and foreign jurisdictions (Newsroom, 2010).

Other issue faced by company is revenue recognition. Revenue is the most important aspect of financial statements and remains on the top of the financial statements. Revenue is not always compared between companies, and reported amount depends on the time when company recognizes the revenue as earned and not when revenue is received. Current challenges related to revue recognition for MNCs are stated below:

Company can adopt new rules on a voluntary basis, and investors in market are looking for early adopters while also remaining vigilant of the shortfalls in the current rules. How company transits to the new rules will importantly impact the trend analysis and any quant-based models or systems. Revenue recognition rules traditionally have two areas of problem that are multi-year projects and multi-component transactions. Both the issues are defined below (Wilfox, 2010):

  • Projects that stretch for multiple years- this can be understood through example, long term projects and investments have fixed or variable costs, multiple deadlines, receipts of uneven cash, and expenses payments. They can also provide a mixture of both goods and services, and these factors make it difficult to estimate the time when revenue should be recorded and in what amounts.
  • Products and services with multiple deliverables- this can be understood through example, in case of technological companies multiple deliverables can be seen which provide the combination of hardware, software, consulting, servicing, support, upgrades and warranties,, and in some cases all factors in one. These products and services can be interdependent, and because of this it becomes difficult for companies to calculate the revenue they earn every quarter. However, stated descriptions only scratch the surface but one of the accounting guideline always stated that revenues must match the expenses. For this purpose, cost must be known and measurable. This usually results that cash payments recorded at different time from the time when revenue is earned (Rosen, 2015).

In case of Apple Inc., revenue recognition is considered as most critical accounting policies. Like, majority of the business industry, Apple also used the technique of ‘point-of-sale’ revenue recognition for sales of hardware, and this also includes the Macintosh and the iPod. This policy states that 100% selling price was considered as revenue by the company at that time when product was shipped to a customer. There are number of customers who directly purchase the products from apple store such as online store or from 170 physical Apple Stores. Other customers purchased the Apple products from resellers such as Amazon.com and Best Buy.

Apple further consider, net sales includes revenue from the sale related to hardware, software, digital content and applications, peripherals, and service and support contracts. Company recognizes the revenue at the time when persuasive evidence of an arrangement exists, delivery has occurred, the sales price in this context is fixed or determinable, and collection is probable. Product is considered deliverable to the consumer at the time when product is shipped and title and risk of loss has been transferred on consumer.in case of produce sale of maximum companies, this criterion is met at the time when product is shipped. In case of online sales to individual, some sales to education customers in the U.S. and for other type of sales, company consider the recognition of revenue till the time when product is received by the consumer,, because in these cases company retains some degree of risk of loss related to these sales during transit. Company mainly recognize the revenue from the sales of hardware products such as Mac computers, iPhones, iPods and peripherals, and those software which is bundled with the hardware that is necessary for the functionality of the hardware and digital content in context of third party sold on the iTunes Store as per the general revenue recognition accounting guidance. Recognition of revenue by company as per the industry specific software accounting guidance for the sales transactions of following types:

  • Stand-alone sales in context of software products.
  • Sales of software upgrades
  • Sale of software in accompany of hardware which are not necessary for the functionality of the hardware.

In case of multi-element arrangements which actually includes the tangible products containing software essentials to the tangible products functionality and also some undelivered software elements which are related to the tangible products essential for software and the company allocates revenue to all deliverables which are actually based on relative selling prices. In some situations, new principles establish a particular hierarchy for the purpose of determining the selling price which is used to allocating the revenue to deliverables as follows:

  • Vendor-specific objective evidence of fair value (“VSOE”).
  • third-party evidence of selling price (“TPE”) and
  • Best estimate of the selling price (“ESP”).

Apple is singing a new song by adopting the new rules in context of revenue recognition, and this completely changes the way through which it reports its revenues (market watch, 2017). Apple changed its target date for the purpose of adopting its new revenue recognition standard into its second-quarter earnings filing with the Securities and Exchange Commission. Company stated in its annual report in last October that it starts reporting under the new revenue recognition standards starting with its first quarter of its 2018 fiscal year and later decided to switch back a year. Company further plans to adopt new revenue standards in its first quarter of 2019 by utilizing the full retrospective adoption method. Apple stated in May that changing just the year from its previous disclosure. In other words, company needs to restate its fiscal 2018 results for comparison, and could restate 2017 results as well, and have the numbers re-audited. Apple further stated that new revenue are not expected to have a material impact on the amount and timing of revenue recognized” in its consolidated financial statements.

Both the issues UTP and revenue recognition are most important issues of accounting and for solving thee issues and avoiding legal consequences company must ensure the efficient and effective accounting system.


After considering the above facts, it can be said that Apple Inc. also faces various challenges while recording its transactions and while conducting accounting. Above stated issues in context of are uncertain tax positions and revenue recognitions. Both the issues are considered as important issues and required effective accounting system to resolve. In case of UTP, it is necessary that organizations identify, measure, evaluate and disclose all the material uncertain tax positions for all the jurisdiction of tax that are federal, state, and foreign. It is very difficult for MNCs to identify, evaluate, measure, and report the uncertain tax positions because it includes analysis of new, existing, and changed tax positions. On the other hand in case of revue recognition, Apple Inc. considered this as most critical accounting policies. Like, majority of the business industry, Apple also used the technique of ‘point-of-sale’ revenue recognition for sales of hardware, and this also includes the Macintosh and the iPod.


Cliffs Gunderson, (2011). Top 5 TAX Challenges And strategies for multinational Companies. Available at: Accessed on 9th December 2017.

Wilfox, J. (2010). Accounting change lifts Apple fiscal Q1 2010 results to over $15.6 billion. Available at: Accessed on 9th December 2017.

Francois, B. Palepu, K. and Barley, L. (2010). Accounting for the iPhone at Apple Inc.Harvard Business School Case 111-003.

Market watch, (2017). Apple changes tune on new revenue-recognition rules. Available at: Accessed on 9th December 2017.

Rosen, M. (2015). Problems with Revenue Recognition. Available at: Accessed on 9th December 2017.

Newsroom, (2010). Apple Reports First Quarter Results. Available at: Accessed on 9th December 2017.

United States, Securities and Exchange Commission, (2010). Documents Incorporated By Reference. Available at: Accessed on 9th December 2017.

Xilinx, Inc. v. Comm'r, 567 F.3d 482 (9th Cir. 2009).

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