Microsoft’s Financial Reporting Strategy Objective • Understanding financial reporting strategy of selecting conservative accounting policies • Discuss controversial accounting issue in the software industry—software capitalization and revenue recognition • Discuss various incentives that motivate managers to select one accounting method over another • Learn how to use accounting analysis method to better reflect economic reality Microsoft’s Financial Reporting Strategy Introduction • Phenomenal
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*Microsoft’s Financial Reporting Strategy 1. What are the factors that likely explain the difference between Microsoft’s market value of equity and its reported book value of equity? The most obvious reason for the difference between the market value of equity and the book value of equity is the inability to record certain intangible assets such as brand value, customer loyalty, and perhaps most importantly, human capital. These intangible assets are likely to provide tremendous earnings
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. *Microsoft’s Financial Reporting Strategy 1. What are the factors that likely explain the difference between Microsoft’s market value of equity and its reported book value of equity? The most obvious reason for the difference between the market value of equity and the book value of equity is the inability to record certain intangible assets such as brand value, customer loyalty, and perhaps most importantly, human capital. These intangible assets are likely to provide tremendous earnings growth
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report, we examined data from numerous sources, including annual and quarterly reports, as well as news articles from the World Wide Web. This data yielded facts about Microsoft's organization, capitalization, accounting practices, markets, and management. By varying our perspective, we were able to drill down into the company's financial results, and in many cases, see how those results occurred. We were also able to identify market areas of greatest competition and the relationship of reported profits
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Group 8 Microsoft’s Financial Reporting Strategy Microsoft’s software capitalization policy effects on its Balance Sheet and Income Statement for 1997-1999 Assumptions: - No potential tax effect - 60% of Microsoft’s R&D expenses were incurred after technological feasibility was established - 2-year average product life - The company begins amortizing software costs at the beginning of the following year R&D Capitalization Method: - Year n: 60% * R&D Book Value year n - Year n+1: ½ * 60% * R&D Book
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BUS 512A Case Questions Winter 2016 Wareham SC Systems, Inc. 1. What is (are) Wareham’s current revenue recognition policy (ies)? 2. Using the limited information in the case, do the industry characteristics or the current revenue recognition policies encourage manipulation of revenues? If so, how could Wareham manipulate its earnings? 3. For each of the specific contracts described in the case, please describe the best revenue recognition policy considering the criteria in SAB 101. (Onsetcom
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1. This question addresses the effect of Microsoft’s software capitalization policy on its financial statements. Ignore any potential tax effects. Estimate the effect of capitalizing software costs on Microsoft’s fiscal 1997, 1998, and 1999 income statements and balance sheets. Assume that 1) 60% of Microsoft’s research and development expenses were incurred after technological feasibility was established, 2) the average product life was two years, 3) the company had always capitalized these costs;
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------------------------------------------------- Microsoft's Financial Reporting StrategyDocument Transcript *Microsoft’s Financial Reporting Strategy 1. What are the factors that likely explain the difference between Microsoft’s market value of equity and its reported book value of equity? The most obvious reason for the difference between the market value of equity and the book value of equity is the inability to record certain intangible assets such as brand value, customer loyalty, and perhaps
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The first case Microsoft’s Financial Reporting Strategy Brief Summary Under the background that Microsoft Corporation announced to be under investigation by the Securities and Exchange Commission (SEC) for certain accounting practices, this case explores the Microsoft’s financial reporting strategy related to two policies through two accounting issues – software capitalization and revenue recognition. Analyzing the performance of its stock, annual income statement, balance sheets, cash flow
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Microsoft Financial Reporting Strategy Financial Accounting: This case introduces two controversial financial accounting topics that arise in the software industry: revenue recognition and the capitalization of software development costs. Financial Accounting from a management perspective: With respect to revenue recognition, Microsoft argues that it will provide additional services throughout the life of the software it is selling, so it should defer revenue recognition on a part of the sale
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