07.23.10
Mainstream Press Misreports Microsoft Revenue, Misses Accounting Tricks
“One strategy that Microsoft has employed in the past is paying for the silence of people and companies. Charles Pancerzewski, formerly Microsoft’s chief auditor, became aware of Microsoft’s practice of carrying earnings from one accounting period into another, known as “managing earnings”. This practice smoothes reported revenue streams, increases share value, and misleads employees and shareholders. In addition to being unethical, it’s also illegal under U.S. Securities Law and violates Generally Accepted Accounting Practices (Fink).
–2002 story about Charles Pancerzewski, Microsoft
Summary: Microsoft carries on with its deferral tactics and it also takes more debt, which embellishes its financial position amid very difficult times
MICROSOFT has a criminal baggage, as everyone ought to know by now. There have been funny things around the accountancy inside this company (which has a history of financial fraud). Due to lack of time, we are not going to repeat what we already covered along with supportive evidence. Currently, Microsoft finds itself reluctantly announcing further layoffs whose purpose is to cut expenses [1, 2]. Microsoft has had too many flukes recently. It has also taken more debt, as we noted repeatedly this year and last year.
On the face of it, what Microsoft does at the moment is it sells a bunch of block-future-licenses to the OEMs, does not yet get the money, and puts that on the plus side of the balance sheet. Apple, by contrast, doesn’t have OEMs, so it needn’t play that particular accountants’ shuffle.
“That means revenue isn’t really $16bn but $10bn and combined with fake OEM-futures isn’t an accurate picture.”
–Anonymous sourceSome Web sites blindly repeat Microsoft’s press release/report. It’s so much easier (and faster) to not ever investigate or be sceptical. It’s also a lot safer, as standing out from the crowd is clearly riskier to a journalist. One site, however, previously pointed out (2 months ago) that “The company’s $2.25 billion in short-term debt and $3.75 billion in long-term debt, combined, is less than its $8 billion cash hoard.”
As one reader of ours put it, “That means revenue isn’t really $16bn but $10bn and combined with fake OEM-futures isn’t an accurate picture.” Vista 7 is not selling well and as we wrote 3 months ago, Microsoft used the deferral trick to elevate Office revenue since the previous quarter (same accounting trick it used for Vista 7 two quarters ago).
We will share more detailed explanations later (there is a lot of catching up to do with Microsoft news, at least 3 weeks’ worth due to that vacation in London, which I now have photos from).
This post is just a placeholder that hopefully addresses questions we heard from people who believe press releases (and those who merely parrot them). A more detailed analysis will come soon. █
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