Accounting Microsoft deferred revenue
...net, Microsoft was entering a period of extreme volatility. By deferring some portion of revenues, it allowed Microsoft to stretch the company’s revenue over 18-24 months, artificially inflating future revenues and smoothing out earnings in general b. It also made some accounting sense for Microsoft to defer a portion of revenue based on the future services and support that the company was to offer with their products. Given that they were changing their product mix (e.g. adding Explorer for free) and the way they delivered value over the life of the product (e.g. updates over the web), Microsoft could partially justify the change along the line of reasoning laid out in AICPA SOP 97-2 4. Overall, Microsoft’s reporting and disclosure strategy was very conservative, electing to defer revenues when possible. There were several notable aspects to MSFT’s reporting & disclosure strategy: a. Under-promise & over-deliver: Microsoft had a history of setting analyst projections low and then beating them quarter after quarter. b. Unearned Revenue: By adding “unearned revenue,” the new accounting structure supports the practice above. Microsoft was able to push earned revenues out into the future, creating a current liability but mitigating future business risk 5. Computer Associates a. CA’s controversial revenue recognition policies included: holding the financial period open after the end of the fiscal quarters, providing customers with contracts with preprinted signature dates, late countersignatures by Company personnel, backdating of contracts, and not having sufficient controls to ensure proper accounting. These policies enabled CA to overstate revenue in '99 an '00, and understate it in future years. Much of this overstatement of revenues appears to have taken place in 1999, but when the adjustments were made and published, restated figures for 1999 we...