Stephen Withers
Tuesday, 15 September 2009 05:12
Opinion and Analysis
Page 1 of 2
The body responsible for setting US accounting standards is considering a rule change that would allow Apple to report higher earnings during periods of growth. It could also see an end to charging for iPod touch software updates.
Apple's insistence on charging iPod touch owners for software updates that iPhone users get for free has long been a cause of irritation.
The company takes the position that the relevant accounting rules say giving away updates that deliver significant new functionality is incompatible with recognising the revenue from the sale upfront.
(But what about this: if anything delivers significant new functionality to an iPod touch, it's Remote - an application from Apple that turns it into a remote control for iTunes or Apple TV. But Remote is free, whether it is for the iPhone or an iPod touch. Figure that one out!)
Since Apple doesn't want to defer the recognition of that revenue as it makes its financial results look worse, it charges for iPod touch updates. Another example of this rule coming into play occurred when Apple released a software update to enable 802.11n wireless networking on certain Macs that had been advertised as offering 11g Wi-Fi but which actually contained an 11n-capable chip.
There's no problem with providing free updates for iPhones, as Apple uses subscription accounting for those devices, spreading the revenue over two years. Why? Maybe it was because the original deal with AT&T reportedly gave Apple a revenue stream rather than an upfront payment.
Depending on your perspective, the problem with subscription accounting is that it does not accurately reflect the true state of affairs if it is applied to a device revenues simply because the company knows it will be adding significant new features via software.
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