May 31, 2002, 9:20 AM — The U.S. Securities and Exchange Commission (SEC) voted Thursday to approve a settlement with Microsoft Corp. that will force the software company to change its accounting reserve practices, according to a report in the Friday edition of The Washington Post.
Microsoft has been using an accounting practice that the SEC believes is misleading to investors, while not fraudulent, and SEC commissioners therefore voted in favor of an administrative action requiring Microsoft to "cease and desist" from the practice, the newspaper said, citing sources within the SEC.
The Redmond, Washington, software company has acknowledged the SEC probe in its annual report since 1999, the report said. The company has been putting aside some of its earnings to pad future financial results where they fail to meet expectations, The Washington Post said. Companies using these "cookie jar reserves" have been criticized by the SEC for misleading investors, hurting people who buy when a company's performance is artificially inflated or sell when it is artificially understated, the report said.
The SEC refused to confirm what had happened in Thursday's meeting, nor even that it had taken place, and it is unclear when it will publicly announce the settlement, the newspaper said.