01/19/2007, 11:10pm, EST
Friday, January 19th
No good reason for Apple's 802.11n fee?
Apple, however, continued to stand by the reasons behind its charges, despite reports that GAAP may not require the Cupertino-based to charge a fee. On Thursday, the company said that "the nominal distribution fee" was required in order for Apple to comply with GAAP for revenue recognition. It said that those GAAP rules generally require that that companies charge for significant feature enhancements, such as 802.11n, when added to previously purchased products.
In a statement to The Wall Street Journal on Friday, Apple reiterated that the charges were required by GAAP and 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 also that it had recognized revenue related to the computers when they were sold in previous quarters.
The report says Apple may be charging the fee to order to avoid restating its revenue based on shipments of technology before it has its full market value. "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... That would have had a devastating impact on Apple," the Journal wrote.
Apple has already recognized all the revenue from the sales of those already shipped Macs with 802.11n hardware, but it now has to now charge customers at least a nominal fee in order to establish the value of its software upgrade and satisfy an obscure accounting regulation known as SOP 97-2, it told News.com.
However, officials continue to question Apple's logic and publicly stated reasons for the nominal fee.
"Accounting doesn't require any charge for anything," says Edward Trott, a member of the Financial Accounting Standards Board, which writes the accounting rules. "No, GAAP doesn't tell you to do anything. You need to work out your transaction with your customer, and GAAP will tell you how to reflect your transaction with that customer."
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Is Apple trying to imitate Microsoft by insulting our intelligence?
It is dumb... but to dismiss what Apple is stating ignores that the law is unclear.
If Apple was doing this for greed, they'd certainly charge more than $1.99. It's unlikely they'll even make a profit on this, as I doubt they'll sell enough of these to balance out the overhead cost of selling them in the first place.
Bear in mind, the only people who are are even going to buy this upgrade are those who bought a Core2Duo machine in the past 3-6 months, want/need 802.11n, but aren't buying a 802.11n Base Station (as they get the upgrade as part of the Base Station cost) and who need it before (or aren't upgrading to) Leopard, which will include it in the spring.
The 802.11n chipsets they shipped very likely cost them more than the previous 802.11g chipsets, so possibly they need to account for this cost to their shareholders. Remember, we live in the post-Enron age, the accounting practices of companies is under constant scrutiny. If Apple chooses to charge some nominal fee to avoid getting spanked by a shareholder lawsuit or the IRS, SEC or some other three-letter agency I think they made the right choice business-wise.
To me the sad part of this issue is that companies have to spend time and money thinking about crap like this instead of designing, building and delivering innovative products.
Oh sure, and look where that got them with the options scandal. I believe I read someplace that the backdating of options wasn't technically illegal, but look at how much hot water they are in about that. There are still some who think it's possible Jobs could be force to step down because of it.
So, if you've got all the eyes of the accounting world and a bunch of federal regulators watching you, wouldn't you go the extra mile to make sure you are squeaky-clean with you ledgers?