Microsoft, SEC in talks to settle accounting case

WASHINGTON: Microsoft Corp. is in talks with securities regulators to settle

charges that it manipulated its earnings reports but hopes to avoid any fine,

sources familiar with the talks said on Thursday.

The Securities and Exchange Commission has been probing the world's biggest

software company for allegedly smoothing its financial results by setting aside

reserves for lean quarters. The sources said Microsoft is talking to the SEC

about a settlement in which it would pledge to observe SEC rules in the future

but face no monetary penalty.

The SEC will likely charge Microsoft with failing to keep accurate books and

records, said the Wall Street Journal, which reported the settlement talks in

its Thursday edition. The terms of any settlement could still change before they

are finalized.

Since 1999, Securities regulators have been looking at Microsoft's alleged

use of "cookie jar" accounting. A Microsoft spokesman declined comment

on any settlement, as did an SEC spokesman. "We take our financial

reporting responsibilities very seriously, and we work hard to comply with every

aspect of the company's reporting obligations," Microsoft's spokesman said.

Legal experts have said the SEC is sometimes reluctant to fine a company

because the money ultimately comes out of shareholders' pockets.

And while the SEC has been aggressive recently in probing accounting

irregularities involving overstatement of revenues, Microsoft is accused of

understating results to prepare for a rainy day down the road.