Microsoft Settles Accounting Probe With SEC

By Agence France-Presse Microsoft Corp. settled a probe on June 3 into its accounting practices that will prevent the firm from using "cookie jar" methods, authorities said. The deal with the Securities and Exchange Commission will stop Microsoft from understating earnings in strong times so the reserves could be used later to boost revenues during weak times, according to the SEC. "Public companies must ensure that their accounting is substantiated in the first instance by factual bases and well-reasoned analyses and conclusions," says Stephen Cutler, director of the SEC's enforcement division. The settlement order came after negotiation talks and an SEC investigation that lasted more than two years. The company is not required to pay a fine or admit wrongdoing. The allegations against Microsoft were different from the accounting irregularities against a number of other companies in that it was accused of understating its earnings rather than overstating them, while keeping various reserves for leaner times. Microsoft acknowledged the settlement in a statement. The Redmond, Wash.-based company said the settlement requires it "to make accurate filings and maintain records and controls sufficient to prepare financial statements in conformity with Generally Accepted Accounting Principles." "The agreement has no impact on Microsoft's reported financial results. No restatement of any reported financial results is required and no penalty has been assessed," the company says. "Microsoft has cooperated fully in the SEC's inquiry, which has been disclosed in Microsoft's financial statements since June 1999." According to the SEC, Microsoft maintained "reserve accounts" that did not have properly substantiated bases, of between $200 million and $900 million during periods between July 1994 and June 1998. Because of this, the SEC said, Microsoft's quarterly and annual filings "failed to accurately report its financial results, causing overstatements of income in some quarters and understatements of income during other quarters." Copyright Agence France-Presse, 2002