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SEC probes Microsoft
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February 13, 2002: 7:26 a.m. ET
Report: Investigation to determine if software maker understated profit.
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NEW YORK (CNN/Money) - Microsoft Corp. is still being investigated by the Securities and Exchange Commission for possibly underestimating its revenue in order to show a sustained earnings growth, according to a published report.
The Wall Street Journal reported Wednesday that the software provider, which disclosed the investigation more than two years ago, is of limited concern to analysts. But it said the investigation is the flip side of the current investigation of the collapse of Enron Corp., a company that is accused of overestimating its profits in financial reports.
Several stocks have seen sharp declines recently when their companies were faced with questions about accounting practices.
A spokesman for Microsoft told the Journal that the company is fully complying with the SEC and takes its financial reporting responsibilities seriously and is doing everything it can to comply with rules.
The paper said questions revolve around whether Microsoft properly recognized revenue from sale of software in the proper quarter, allowing it to build a reserve of revenue that can be recorded in future periods.
The investigation was apparently sparked by former Microsoft auditor Charles Pancerzewski, who sued the company for wrongful termination in 1997 and later settled with the company. Pancerzewski, who says he was terminated for complaining about accounting practices, told the paper he last talked to the SEC last year.
He disputed that underestimating revenue and income would not hurt investors, arguing that a company doing so would allow it to use reserves it built up on the books to show earnings growth that it had not truly achieved.
The paper cites an e-mail, disclosed during Pancerzewski's suit, that former Microsoft Chief Financial Officer Michael Brown sent to company Chairman Bill Gates in which he said, "I believe we should do all we can to smooth our earnings and keep a steady state earnings model."
Shares of Microsoft (MSFT: Research, Estimates) lost 99 cents to $60.14 in trading Tuesday. 
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