30 May 2002 The US Securities and Exchange Commission (SEC) is close to a settlement with software giant Microsoft over allegations that the company manipulated its financial results to meet the demands of US stock exchanges for steady revenue and profit growth.
The SEC investigation charges that Microsoft artificially reduced its top-line revenues, in effect enabling it to set aside reserves to bring forward for future earnings releases. It is unclear whether Microsoft not only lowered its revenues, but also if it ever added these reserves to subsequent financial results.
However, it is unlikely that a settlement, which could still be weeks away, will result in a financial penalty for Microsoft. A more likely scenario is that the SEC will bring civil charges against Microsoft for failing to keep accurate records of its financial results.
The SEC has stepped up its scrutiny of corporate accounting practices following the collapse of energy trader Enron, although the investigation into Microsoft predates this. The SEC first publicly disclosed its investigation of Microsoft in 1999.
Since the collapse of Enron, the accounting practices of a slew of technology vendors, including Computer Associates, IBM and Global Crossing, have been closely examined by the SEC. Unlike Microsoft, most companies have used financial engineering to push their financial results upwards.