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SEC Settles Microsoft Accounting Investigation

Posted by ryuzaki0 on from the cooking-the-books dept.

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.

2 of 277 comments (clear)

  1. Analysts are the ultimate sheep! by JohnA · · Score: 5, Interesting
    Sorry to go off on a rant here, but analysts are the biggest farce in the financial industry. Don't take my word for it... see for yourself. Analysts consistenly raise or lower their rating of a company AFTER a major rise or fall.

    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.

  2. Re:Welcome to the world of Income Smoothing by jayed_99 · · Score: 5, Interesting
    You're exactly right.

    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.