An excuse or?

There has been a tad bit of controversy bubbling over the internet tubes - Apple claims the SEC requires this charge, the SEC denies it.

Apple store

Apple Gets a Bruise by Blaming A $1.99 Fee on Accounting Rules - Apple Inc. recently told some customers they would have to pay $1.99 to download a software enhancement that enables a wireless-networking technology already included on some of its computers.
Apple's reason: Accounting rules forced it to make customers foot the bill for the enhancement.
That's an excuse, counter accounting experts and officials at the body that sets accounting rules, known as generally accepted accounting principles, or GAAP, for public and private companies. Rather, Apple is choosing to make customers pay so that it receives a particular accounting treatment it considers most favorable to it, they say.

“GAAP doesn't require you to charge squat,” says Lynn Turner, managing director of research at Glass Lewis & Co. and a former chief accountant of the Securities and Exchange Commission. “You charge whatever you want. GAAP doesn't even remotely address whether or not you charge for a significant functionality change. GAAP establishes what the proper accounting is, based on what you did or didn't charge for it.”

In a statement Friday night, Apple said that “the proper accounting” for shipping the enhancement was “to charge for this performance improvement in order to be in compliance with software revenue accounting requirements.” It added that Apple had recognized revenue related to the computers when they were sold.

The electronics maker recently said customers who bought some new Macs, including the MacBook and MacBook Pro laptops based on a microprocessor from Intel Corp. called Core 2 Duo, would now be able to use hardware that supports a faster new variant of a wireless technology commonly known as Wi-Fi. While Apple for several months has shipped computers with the wireless hardware, the final technical specifications for software for it weren't complete enough to include software to support the technology.

Hmmm. Seems like more of a headache for everybody, doesn't it? How many manhours does it take for Apple to collect $1.99?

Addressing the $1.99 charge in a statement issued late this past week, Apple said the fee was “required in order for Apple to comply with generally accepted accounting principles for revenue recognition.”

So why would Apple charge customers if it didn't have to? The company felt it had no choice, based on the accounting outcome that would have resulted had it given the product away, said a person familiar with the matter. In that sense, even if the accounting rules didn't explicitly say such a charge was necessary, that was the result, this person said. When Apple shipped the computers with the technology now being enhanced, it couldn't defer revenue related to that technology, because there was no market price for the enhancement, the person added.

If Apple had given the enhancement away free, Apple's auditors could have required it to restate revenue for that period and could possibly have required Apple to start in the future to defer all the revenue from computer sales until all such enhancements are shipped, this person said. That would have had a devastating impact on Apple.

I don't have an 802.11n WiFI network anywhere that I know of, so the question is moot at the moment.

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This page contains a single entry by Seth A. published on January 22, 2007 10:07 AM.

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