Typically companies offer free software upgrades to products you have already purchased from them. Not Apple, which caused a commotion a couple of weeks ago by announcing that it would charge customers $1.99 to download a software enhancement that enables a WLAN technology already included on some of its computers. Apple was quick to offer a reason: Accounting rules forced it to make customers foot the bill for the enhancement.
Accounting experts say Apple is disingenuous, since there are no accounting rules that force the company to do anything of the kind. Rather, Apple has chosen to make customers pay so that the company receives a particular accounting treatment it considers most favorable to it. "GAAP [general acceptable accounting practices] doesn't require you to charge squat," 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."
It is true that allowing customers to download the software enhancement for free would have had accounting ramifications for the company. When Apple shipped to customers the computers that included the hardware components of the WLAN technology (the software enhancement now downloaded enables that technology), it could not defer revenue related to that technology because there was no market price for the software enhancement. Now, if Apple had given the enhancement away free, the company could have been required it to restate revenue for that period and could possibly have been required to start in the future to defer all the revenue from computer sales until all such enhancements are shipped. Still, accountants insists that Apple did not have to charge its customers for the enhancement.
For more on Apple's enhancement charges:
- see David Reilly's Wall Street Journal report (sub. req.)