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SEC Settles Microsoft Accounting Investigation
guttentag writes "The Securities and Exchange Commission has wrapped up its two-year investigation into Microsoft's accounting practices. The investigation focused on "cookie jar" accounting practices in which a company reports that it earned less money than it actually did, secretly storing the unreported money to artificially boost earnings in the future. The SEC called off its investigation in exchange for Microsoft's promise that it will not break the rules in the future, though the company is not admitting that it broke rules in the past. Microsoft publicly states that it has $40 Billion on hand." Gates realized a long time ago that regardless of actual performance, if you "beat estimates" people will buy your stock. So, he's arranging it so that no matter what the actual performance is, Microsoft always "beats estimates". If your analyst estimate is low 61 out of 63 times, either A) you need a new analyst or B) someone is feeding the analyst bad numbers. In this case, probably both.
The only time a company has to make its numbers known publicly is in its quarterly reports to the SEC. Any whisper numbers that are passed around by analysts are simply that - whispers.
And you really answered your own question. Why does an analyst guess wrong 61 out of 63 times (in favor of better stock performance)? Because they can make more money that way.
There is something rotten, but it isn't in Redmond. The stench is coming from Wall Street.
I have been pwned because my
Microsoft stock is worth less than 50% of its value about 2 years ago so it doesn't seem to be working anyway.
Anyone who uses an analyst's recommendations as anything other than a source of humor needs to seriously reconsider their actions. Here's another great example of how "accurate" analysts are. Merrill Lynch is one of the worst.
Just my $0.02.
Remember what Microsoft has been saying all this time regarding software piracy? Since we're talking copies they never made being sold for money they never got, along with losses they've claimed where none physically existed (If you make one million copies of software that sells out, and someone makes one million copies of their own to give away, then they haven't technically lost any money, as they never made that additional one million copies to begin with), I would have to definately say they were using the cookie jar tactic here as well...
Just because you can mod me down, doesn't mean you're right. Shoes for industry!
Investors do not like to see large variations over a short period of time. Large fluctuations -- either up or down -- skew the statistics they use to make future projections.
Investors want to be able to make accurate projections. Analysts want to be able to make accurate projections so they can get paid by investors. Companies want to be able to provide the information to make accurate projections so they can get paid by investors. Accountants want their numbers to be conducive to making accurate projections so they have a company to work for. Auditors want their reports to say that accurate projections are possible so they can get paid by companies.
It's an incestuous system whose sole purpose is making people think that investing is more like monopoly than blackjack.
This started long before George 'W' and represents a larger than Enron class failure of auditing and business ethics. The point of accounting is to report the accurate state of affairs of the organization, not some CEO/CFO's wishful thinking.
Generally Accepted Accounting Principles (GAAP) are created and maintained by the Financial Accounting Standards Board (which interestingly doesn't come up with a Google search -- at least when I looked for it). Much of the current round of problems can be laid clearly in their lap.
The consensus in the auditing community is that the lesson was not learned with Enron and hence an even larger disaster will have to happen before this increasingly corrupt set of practices, auditors, and corporations is revised.
I'll also note that I am about as pro-business as it is possible to be, but when all of business stands on quicksand because of bogus financials there is the opportunity for just a little shaking causing the whole thing to liquify and slide into the morass.
-- Multics
He, and others, are simply hacking the economic structure. They insert an extra NOP to better the timing, they tweak their routines. Is it any surprise? Finance is a game, with a huge set of rules, and a very bugger compiler (see if you get my anology). They are not being evil, they are playing the game. As others have pointed out, this is no fault of Microsoft that they are good at it.
Sorry, but what the fuck? They're "agreeing" to what exactly? To obey the law? To continue doing exactly what they're doing right now (whatever that is)? What kind of "agreement" is this?
Quo custodiet ipsos custodes? I'd be very interested in knowing how many of the SEC people involved in this "investigation" have suddenly found themselves able to pay off their mortgages, or fund their kids through college. And no, I am not joking. When you're dealing with a company with $40 billion in the bank and bad accounting practices, squirreling a couple of million in a slush fund is trivial. I mean, how many people at Microsoft actually believe that they know exactly how much money Microsoft has - and how many different figures would you get if you asked all of these "authoratative" figures?
This "nothing to see here, move along" investigation is a farce. They are either innocent, in which case there's no "agreement", or they are guilty, in which case they should get reamed. This stinks.
If you were blocking sigs, you wouldn't have to read this.
If I even hear someone say "That's just like MS," then you're too young to remember when an OS used to cost $300. Most people don't even "pay" for Windows.
If I'm not mistaken, if you buy a full version of a MS OS (instead of an upgrade version) they still charge about $300.
I think some of the stuff they have done (charging OEMs even for computers where windows isnt't installed, charging OEMs more if they choose to allow alternate operating systems on their computers) is just as bad, if not worse then some of what Enron did.
Still, what microsoft is doing is using shady accounting to artificially inflate their stock price. You might say its creating shareholder value, but that shareholder value comes from more people buying more stock because they are riding a speculative bubble. If the company is leaking money, the investors should know it.
If you are planning on sending your kids to college on someone's stock, shouldn't you have a clear indication of how the company is actually doing?
Should being a monopoly and having lots of cash in the bank negate your respobsibilities to keep your shareholders informed of your finances?
Heh. Just thourght it was a good time to bring up good old Bill Parish who spend some time a couple of years ago looking into MS accounting pratices and claimed they don't really make money at all... Haven't been updated since November 1999 tho.
http://www.billparish.com/msftfraudfacts.html
The slashdot blurb focuses on Microsoft's delaying earnings to smooth out earnings reports and make sure they keep better expectations. Here is an article that explores the hypothesis that Microsoft is hiding earnings because as a monopoly they want to control the impression of success. "Well, when you're a
monopoly, churning out what some anti-capitalists believe are obscene
earnings year after year, you just might find it in your best
interests to hold back a bit, this analyst says." I think that this hypothesis is more severe than the smoothing hypothesis. Smoothing earnings is somwhat benign, your just covering up volatility. Hiding earnings over the long term to descrease the bad taste of being a monopoly is more corrupting.