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Apple Charges For 802.11n, Blames Accounting Law
If you have a Core 2 Duo Macintosh, the built-in WLAN card is capable of networking using (draft 2) 802.11n. This capability can be unlocked via an update Apple distributes with the new AirPort Extreme Base Station. Or, they will sell it to you for $4.99. Why don't they give it away for free, say with Software Update? Because of the Sarbanes-Oxley Act (which was passed in the wake of the Enron scandal). iLounge quotes an Apple representative: "It's about accounting. Because of the Act, the company believes that if it sells a product, then later adds a feature to that product, it can be held liable for improper accounting if it recognizes revenue from the product at the time of sale, given that it hasn't finished delivering the product at that point."
The issue here is that Apple's patch can be construed as "new functionality" as there is significantly increased network performance in products that have been shipping for months, whereas most of the patches from MS are attempting to fix existing, yet broken functionality.
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Microsoft add new features too. The security centre & windows firewall for one example.
If you have a GeForce/Quadro, it is called 'NVIDIA PureVideo Decoder'.
Even before Sarbanes-Oxley (e.g. in the mid-1990's) ethical, conservative CFO's [admitted a rare breed] were very careful about "recognizing revenue" for a product when a newer or better version was in the works. Our "head up the ass" Congress passed Sarbanes-Oxley and now companies have hire many more lawyers to cover their asses. Lots of companies in Apple's situation would simply do NOTHING - no charge, no upgrade: WYSIWYG hardware. Is that in the consumer's best interest? I think not!
It's amazing what gets 'blamed' on Sarbanes-Oxley. And most of the time, completely off base. While there is surely some money-grubbing from Apple, this is probably nothing more than Apple making a conservative decision to apply existing accounting policy more stringently. The previous poster here gets it right.
I am a forensic accountant - I do large corporate financial investigations, which involve accounting analysis and numerous interviews of management.
And I can't tell you how many times I've heard people in companies, when asked about $FOO, say "we had to do this because of SOX". Most of the time, they couldn't tell you what SOX is, or why that is the cause of $FOO.
SOX has turned into the Boogeyman, the shadow lurking in the background of any financial discussion. Unknown reason? SOX made us!
At its simplest, SOX requires that companies document what they do and how they do it. "404" is just a requirement that companies have a complete set of working documents describing accounting processes and the controls around those processes, and that they have actually tested to see that the processes and controls work properly.
Along with 404, SOX also heightened the burden on the financial accounting groups. Now CEOs and CFOs sign statements in quaterly and annual SEC filings, under penalties of civil and criminal law, that certify that they are "responsible for establishing and maintaining internal controls", including upward reporting from subordinates and subsidiaries, and that the controls have been tested and reported on in the filing.
As a result, corporate accounting departments have tightened up, More documentation of different types of accounting processes mean that existing, latent accounting issues are being surfaced and addressed. More conservative usually, in the sense that one does not 'push the envelope' of GAAP.
This is not really 'SOX made us do it', but rather as result of the analysis that SOX calls for. Sematics, but an important difference, I think.
Accounting Background - What is at work here?
SOP 97-2 "Revenue Recognition for Software Products with Multiple Deliverables".
SEC and AICPA: Revenue generally is realized or realizable and earned when all of the following criteria are met:
- Persuasive evidence of an arrangement exists
- Delivery has occured or services have been rendered
- The seller's price to the buyer is fixed or determinable, and
- Collectibility is reasonably assured
So, Apple decided that at the time of the sale of the computer with 802.11n (but not yet functional), with no additional amounts due from the customer, that since Apple had not perfected delivery of the complete laptop with 802.11n, they had not finalized all terms of the delivery, and thus had not "earned" all of the revenue from that sale. This would cause them to 'defer' some portion of the revenue (a liability on the balance sheet) until the final piece of the sale (802.11n) was delivered to the customer.
Under Apple's current policy, the computer is sold without 802.11n, delivery of this total package is complete when the customer receives the laptop, and Apple recognizes that entire sale as current revenue. Then a new $4.99 sales happens when the customer purchases the upgrade.
See: NY Society of CPA's discussion of SOP 97-2.
Now, there are certainly valid objections to the scope and scale of 404, but those are fairly focused on the size of companies that SOX should apply to, and how much testing the auditor should demand that they and the company do around 404.
Software products are advertised for their core functionality. They're intended to be fluid products, and accounting doesn't care what features are added or removed in software, as long as Photoshop stays an image editor and Dreamweaver stays a web content editor, the rules are met.
Not the same with hardware. Any material change in the product has to be accounted for. If Apple already filed its disclosure statements indicating that its products had b/g wireless chipsets in it (which it would have), it can't go back and change that later and say "oops actually it's 802.11n." Doing so would be a "material misstatement" punishable by the PCAOB under Sarbanes-Oxley. By charging for the 'upgrade' they can file current accounting documents saying that the products were upgraded with new functionality.
... enables dormant hardware that isn't being charged for in the purchase of the product.
Yes it is. If you bought the hardware you paid for everything. There are no 'free parts' - all the components are part of a whole. The fact that something isn't enabled is completely irrelevant - you were charged for it and paid for it.
What happens if we apply this thinking to patches? Oh I'm sorry - we fixed that last exploit with a new version of Safari that adds xxxxx feature, but because it wasn't there when we sold you the computer, we are going to have to charge you.
This is nothing more than fleecing users for cash.
When I was in high school, we had an IBM 1130 system. We had a slow line printer. IBM sold two different versions of that printer - a slow one, and a fast one. The fast one cost several thousand dollars more. The difference? one jumper (which, if you switched manually, you voided the warranty).
Often, manufacturers will sell a range of products, and it's cheaper for them to sell artificially castrated versions of the expensive versions as cheap ones, rather than manufacturing a cheaper product separately.
If you pay for a cheap unit and they give you an expensive one with the additional features disabled instead, you have no cause to whine about it being disabled, since you didn't pay for it - you got it for free.