updated 11:10 pm EST, Fri January 19, 2007
Apple's 802.11n fee redux
Experts and officials are questioning Apple's stated reasons behind its proposed $1.99 fee to enable faster wireless technology in some already shipped Macs. The company on Thursday confirmed that it will charge users a small fee to enable the new, faster 802.11n wireless technology in its previously shipped Core 2 Duo-based Macs, saying that the charges were required to stay in compliance with generally accepted accounting principles (a.k.a, GAAP). "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 told The Wall Street Journal. "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."
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."