This case discusses the reporting strategies of Microsoft in its financial segment. The two issues that are usual in the company’s accounts are the capitalization of the software and the recognition of revenues. The company has selected methods that are conservative in nature to solve these issues. The case also covers the expectation of the analysts at Microsoft and the actual conservative approach that fails to attain these expectations. The discussion is based on the reasons that Microsoft has chosen such a conservative approach. Also, the role of the Securities and Exchange’s new exploration of Microsoft’s conservative accounting practices are discussed.
1. What accounting methods does Microsoft select?
2. What is Microsoft's financial reporting strategy regarding the accounting issues of (A) software capitalization and (B) revenue recognition?
3. Discuss reasons for Microsoft’s accounting and disclosure choices?
4. What issues can arise from Microsoft’s financial reporting regarding managing?