Microsoft and S.E.C. Reportedly Negotiating

The issue has been hanging for more than two years, and the talks may reflect a recent SEC attempt to crack down on ``cookie jar'' accounting practices that fail to provide an accurate picture of earnings and revenues.

The SEC is investigating whether Microsoft smoothed its results by setting aside artificially large reserves to reduce revenues with the idea of reversing that procedure to record the revenues in less profitable future periods.

The sources told the newspaper, however, that investigators have been unable to determine clearly whether Microsoft ever did reverse the process.

Microsoft's cookie jar is a line item on its balance sheet called "Unearned Revenue". This allows them to smooth out revenue ups and downs. Enron and others of their ilk have gotten in trouble for overstating revenue and profits. It appears that MSFT is about to get in trouble for understating them.

Microsoft has a nice web page with spreadsheets of historical financial statements. You can find the Unearned Revenue History listed there, along with corresponding Income Statements. I'd love to see a detailed, intelligent analysis of these numbers, but stock analysts have been doing that for years.  

5:42:14 PM  comment []