A recent Accountingweb article talks about how accounting treatment can affect stock prices in a big way. Recently Apple overtook Microsoft as having the largest market cap for a technology company. According to the article, some of this may be due to accounting treatment:

Supplementary notes to Apple’s results and filings with the Securities and Exchange Commission confirm that the company’s early adoption of new U.S. revenue recognition rules has added extra luster to its reported results in recent months.

You may be asking, can early adoption really make that much of a difference? Well, in this case it did.

Under the previous historical accounting principles, Apple explained that it was required to apply a subscription accounting treatment for sales of both iPhone and Apple TV because it would occasionally provide unspecified software upgrades free of charge. Under subscription accounting, revenue and associated costs of sales were deferred at the time of sale and recognized on a straight-line basis over each product’s estimated economic life. This deferred significant amounts of revenue from iPhones and Apple TV – and iPad sales would have fallen into the same category.

Looking at the restated figures under the new treatment, the half-year net profit figure that was originally reported at $2.6 billion now is being reported for comparative purposes as $3.9 billion – a 47.5 percent increase.

Adoption is required in Q1 of 2011, but hey, sometimes it pays to adopt early. In this case it paid $1.3 billion. The change in accounting treatment was fully disclosed in the earnings announcement which can be found here, but it’s still fun to think, hey, just changing the accounting made us $1.3 billion.