Microsoft, SEC in talks to settle accounting case

By : |May 31, 2002 0

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.

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