Photo: Photo by Kevork Djansezian/Getty Images
Apple’s recent quarterly financial reporting fiasco should serve as a reminder to all analysts that even little mistakes can have big consequences.Following its Q4 2012 earnings announcement, Apple suffered its worst one-day loss in four years, as a result of the company’s failure to meet Wall Street’s expectations.
This was due largely to a simple calendar-generated error – most analysts failed to account for the fact that Apple’s Q4 2012 was one week shorter than the same quarter the year before.
At the root of this error is the 13-week quarter problem. Apple, like many other companies, defines its fiscal quarters in 13-week periods. With the Gregorian calendar, this requires an adjustment (the addition of an extra week every five or six years). Apple added the extra week in 2011, and many Wall Street analysts failed to pick up on the change between 2011 and 2012.
Unfortunately, such analyst errors are all too common. Indeed, on average, analysts tend to “forget” that companies periodically add a 14th week to quarters and overestimate revenue in years following 14-week quarters (see R. Johnston, A. J. Leone, S. Ramnath, and Y. Yang. “14-Week Quarters,” Journal of Accounting and Economics,” Feb.— April 2012.).
Errors like those that led to Apple’s quarterly reporting debacle would have never occurred if the Hanke-Henry Permanent Calendar was in use. The HHPC, which my colleague, Johns Hopkins Astrophysics Prof. Richard Conn Henry, and I developed would, among other things, create a system in which each day, each year, falls on the exact same date.
The Hanke-Henry Permanent Calendar provides a comprehensive template for revising the contemporary Gregorian calendar. It adheres to the most basic tenet of a fixed (read: permanent) calendar – each year, each date falls on the same day of the week; in our case, every year begins on Sunday, January 1.
The year is then divided into four three-month quarters. Each month begins on the same day (and date) each year. The first two months of each quarter are made up of 30 days; the third is made up of 31 days.
So, each quarter contains 91 days, resulting in a 364-day year that is comprised of 52 seven- day weeks. This is a vital feature of the HHPC, because, by preserving the seven-day Sabbath cycle, the HHPC avoids the major complaints from ecclesiastical quarters that have doomed all other attempts at calendar reform. Indeed, one of the major criticisms of past calendar reform attempts is that they interfered with religious days of rest, which play an integral role in the organisation of economic activity, i.e. “the work week”.
If publicly-traded companies adopted the Hanke-Henry Permanent Calendar, quarters would be the same length, year after year, and every day would occur on the same date each year. In terms of accounting, the types of confusion and errors generated in the recent Apple case would be avoided, as all businesses would be employing the same permanent calendar and accounting conventions. There would be no need to do otherwise.
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