Microsoft: Linux may mean price cuts, fewer sales

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What you are referencing is called ?cookie jar accounting?

Cookie Jar Accounting is defined as:

A sometimes questionable corporate accounting practice of taking reserves against losses during profitable years and using them in unprofitable years, to smooth out the earnings numbers and make the company's operations seem more consistent than they are.

This is related to another questionable accounting practice called: Cooking the books. Cooking the books is defined as:

Knowingly providing incorrect information in a company's financial statements. Illegal.

In 1999, Microsoft got caught by the SEC for this practice when one of their accountants, Mr. Pancerzewski, noticed this behavior and reported it. From: http://www.fool.com/portfolios/rulemaker/1999/rulemaker990120.htm

[I[The illegal accounting practice detailed in Mr. Pancerzewski's testimony is known as a "Cookie Jar" reserve policy, where a company borrows money against earnings during good quarters in order to set "reserves," thus subtracting the money from earnings and tucking it away off the balance sheet. Then, in bad quarters, a reserve can be cancelled to add back the money and invisibly inflate earnings. This would smooth out the natural volatility endured by any company that sells to the public and would allow it to beat earnings estimates by a controlled amount each quarter no matter how its business actually performed. The down side is that the company would be lying to its investors about its current income, and this practice would violate both Generally Accepted Accounting Principles (GAAP) and SEC regulations.

It was reported in WindowsITPro on July 1, 1999 (Article: http://www.winnetmag.com/Article/ArticleID/18775/18775.html).

In a conference call with financial analysts Wednesday, Microsoft CFO Greg Maffei confirmed that the U.S. Securities and Exchange Commission (SEC) are investigating the company for questionable accounting tactics. Microsoft has an interesting, if dubious, "cookie jar" accounting scheme where profits from successful quarters aren't reported so that less successful quarters can be padded. This creates a false growth curve that is smooth and steady, not the typical up and down earnings you'd expect from a company that relies on periodic product rollouts. Microsoft began the practice with the release of Windows 95 and it currently has over $4 billion in "unearned revenue" sitting on the books.
In WindowsITPro on June 2, 2002, it was reported that ?SEC Announces Microsof Settlement (Article: http://www.winnetmag.com/Article/ArticleID/25443/25443.html).
The US Securities and Exchange Commission (SEC) revealed Friday that it has agreed to settle its accounting-practices case against Microsoft. The agency had launched an investigation to determine whether the company misled shareholders by understating earnings so that it could pad future, less lucrative, reporting periods. Microsoft won't need to admit any wrongdoing or pay a fine, but the company must permanently cease using the controversial accounting practice called smoothing, revenue deferral, or cookie-jar accounting (depending on which legal expert you ask).
Also see: http://www.usatoday.com/tech/techinvestor/2002/06/03/microsoft-sec.htm
http://news.bbc.co.uk/1/hi/business/2023501.stm

Posted by: B.O.F.H.   Posted on: 09/04/04 You are currently: a Guest | Members login | Terms of Use

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