Wayne Niddery wrote:

> > What is the "advent of 'SOX legislation'"?
> 
> SOX = Sarbanes-Oxley, the two U.S. congress-critters that came up
> with this horrible legislation. It imposes all kinds of new rules on
> how a company must do its accounting and was a hasty "knee-jerk"
> reaction to the fraud and other criminal activity by Enron.

To be clear, it is actually my understanding that the accounting
"rules" about requiring the amortization of "subscriptions" or
"incomplete product delivery" have been in place for many, many years
prior to the SOX legislation. What SOX did, among other things, was to
now hold certain company officers *personally* responsible for any
published financial results.  SOX also put into place much, much
stiffer penalties and fines if auditors ever found irregularities in
the books.


Previously, the "accounting rules" were largely left to some level of
interpretation, so some companies may have stretched and pulled them a
little more than others. Now with SOX, companies are now,
understandably, very skittish about "misinterpreting" the rules and
getting caught with their pants down. This bred a whole new industry of
independent corporate auditors that come in and ensure that a company
is meeting a now better standardized interpretation of the rules. Now
software is treated no different than a physical widget of some sort.
Until the accounting rules take into account the realities of software,
we're stuck with the way things are.


Remember when Apple was issuing an "update" to the iPhone and charged
$5 or some such to existing customers to get it? They publicly stated
that they could not "give it away" because that would have triggered a
nasty restatement of earnings event... While I have no evidence to the
fact, I suspect that they've switched to a fully amortized model just
to avoid such a situation in the future. However, they had enough
revenue from all their other products *and* it was early enough into
the iPhone lifecycle, whereby they could easily survive the blip in
revenue.


-- 
Allen Bauer
Embarcadero Chief Scientist
http://blogs.embarcadero.com/abauer