Microsoft Reportedly Mulls SEC Settlement

Microsoft Corp. is in negotiations with the Securities
and Exchange Commission (SEC) to admit to a minor violation of SEC rules,
according to Thursday’s Wall Street Journal. The settlement
reportedly would not include a fine, with Microsoft promising to abide by
SEC accounting rules in the future.

The Microsoft investigation arises from the company not reporting revenue it
should have. Microsoft is accused of trying to smooth out its revenue stream
by setting aside some revenue to be recognized during rockier times. A more
regular revenue stream would make Microsoft stand out even more than its
tech peers, most of whom ride the waves of boom and bust in technology
spending.

In a statement to the Journal, a Microsoft spokesman said, “We take
our financial reporting responsibilities very seriously, and we work hard to
comply with every aspect of the company’s reporting obligations.” He
declined to comment on the specifics of the SEC investigation.

In the wake of the Enron fiasco, the SEC has made a concerted effort to
pursue companies using sleight-of-hand accounting. Unlike the Microsoft
probe, most of these investigations are of the Peregrine or WorldCom variety, in
which the SEC alleges companies stoked their balance sheets to appear more
robust than they actually were.

Microsoft has been a dependable performer for the financial markets, but the
Redmond, Wash., company has made moves to lock in sales more regularly. Its
most high-profile effort is the controversial Software Assurance Program, a
volume-licensing agreement Microsoft hopes will move most of its enterprise
software customers to a subscription-pricing model.

Under Software Assurance, businesses have until July 31 to sign on to pay
regular fees to Microsoft in return for automatic software upgrades.
Microsoft has said most companies will save money, but IT managers have
reacted ambivalently, with many claiming the agreement tilts the playing
field Microsoft’s way. According to separate research done in May by Gartner
Group and Giga Information Group, two out of three Microsoft customers had
not signed up.

Meanwhile, Microsoft’s main legal tussle, the antitrust case brought by nine
states, is due to wrap up soon, with closing arguments scheduled for June
19.