HBR case study handbook
Apple Case
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.
Now that the technical specifications are complete, Apple said customers who want to turn on the hardware will be able to
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.
Now that the technical specifications are complete, Apple said customers who want to turn on the hardware will be able to