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.