RealTime IT News

Microsoft, SEC Settlement Announced

The Securities Exchange Commission (SEC) on Monday announced a settlement with Microsoft over allegations of accounting violations that understated revenues.

As previously reported, the settlement calls for the software giant to cease and desist from misstating its income but it did not include any admission of wrongdoing.

However, Microsoft would not have to restate any earnings reports, according to the SEC settlement.

In finding that the company's accounting procedure did not comply with Generally Accepted Accounting Principles (GAAP), the SEC found that Microsoft misstated its income by material amounts in certain periodic filings with the Commission made between July 1, 1994, and June 30, 1998. It also found that Microsoft did not properly document the bases for these accounts and failed to maintain proper internal controls, as required by the federal securities laws.

"This case emphasizes that the Commission will act against a public company that issues financial statements with material inaccuracies, even in the absence of fraud charges," said Stephen Cutler, Director of the Commission's Division of Enforcement.

"Public companies must ensure that their accounting is substantiated in the first instance by factual bases and well-reasoned analyses and conclusions. In order to do so, companies must properly document the bases for their reserves and other accounting entries, so that they and their auditors can verify that the accounting is proper; and they must maintain appropriate internal controls, so that this verification will occur in the normal course of business," Cutler said.