SEC investigating Microsoft for 'cookie jar' accounting

In a conference call with financial analysts Wednesday, Microsoft CFO GregMaffei confirmed that the U.S. Securities and Exchange Commission (SEC) areinvestigating the company for questionable accounting tactics. Microsoft hasan interesting, if dubious, "cookie jar" accounting scheme where profitsfrom successful quarters aren't reported so that less successful quarterscan 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 relieson periodic product rollouts. Microsoft began the practice with the releaseof Windows 95 and it currently has over $4 billion in "unearned revenue"sitting on the books.

Microsoft says a January article in the Wall Street Journal, which featuredan interview with a former Microsoft employee who described the practice,tipped off the SEC but that its accounting is perfectly legal.

"We don't know the entire scope [of the investigation] other than it relatesto reserves and reserve policies," said Maffei. He noted that Microsoft iscooperating fully with the SEC and is changing its accounting practices torecognize profits from Windows and Office up front, rather than spread thoseprofits over future quarters