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ACCT7102 Individual Case Study Assignment:
‘Microsoft’s Financial Reporting Strategy’
Task Description:
The financial reporting case study is a comprehensive case study drawing from Topic 5
(Managerial incentives for financial statement management). The case will also be used to
examine student report writing skills, general accounting knowledge, research skills and
ability to critically evaluate complex case scenarios.
The case is to be undertaken individually and students should independently prepare their
assignment. All cases will be reviewed for plagiarism and independent content. The
University has adopted the following definition of plagiarism:
Plagiarism is the act of misrepresenting as one's own original work the ideas,
interpretations, words or creative works of another. These include published and
unpublished documents, designs, music, sounds, images, photographs, computer
codes and ideas gained through working in a group. These ideas, interpretations,
words or works may be found in print and/or electronic media.
Students are encouraged to read the UQ Student Integrity and Misconduct policy
(http://ppl.app.uq.edu.au/content/3.60.04‐student‐integrity‐and‐misconduct) which makes
a comprehensive statement about the University's approach to plagiarism, including the
approved use of plagiarism detection software, the consequences of plagiarism and the
principles associated with preventing plagiarism.
Criteria & Marking:
A full marking criteria sheet is attached. In general, the case will be assessed based on:
accuracy of answer and interpretation of relevant accounting standards;
presentation of a thoughtful and well supported answer;
quality of research;
clarity of analysis; and
professional presentation including grammar, spelling, punctuation. This will also be
judged based on it suitability to be presented to a fee paying client.
Weighting: 25% of final grade.
Due Date: By 4:00pm, Thursday 28 May 2015.
Items (for which no extension has been granted) submitted after the due date and time,
incur a late submission penalty. The penalty is at the rate of 5% (0.4 of a grade) of the total
available marks for that particular piece of assessment, for each calendar day or part thereof
that the item is overdue.
Length: The word limit is strictly 1500‐1800 words (excluding a reference list). Any material
exceeding the word limit will not be read and the mark for the assignment will be based on
the material up to the point where the word limit was exceeded.
Referencing style: The appropriate referencing style is that used within any of the top
accounting journals such as the Accounting Review, Journal of Accounting Research, Journal of
Accounting and Economics, and Accounting, Organizations and Society. All of these journals
are available online through the UQ Library.
Case Study Assignment Questions
ACCOUNTING ISSUES AND RESEARCH COMPONENT
REVENUE RECOGNITION AND SOFTWARE CAPITALISATION POLICY
Question One (Total marks: 18)
(a) Following the release of Windows 95 in the first quarter of the 1996 fiscal year,
Microsoft adjusted its revenue recognition policy. The official reason for the change
was a change in the implied commitments underlying the sale of some of the
company’s software.
What effect did Microsoft’s change in revenue recognition policy have on its financial
statements prepared for the fiscal years 1997, 1998 and 1999? Ignore any potential
tax effects.
(Hint: Support your answer by completing Table 1 below).
(6 marks)
Table 1 – Estimate of the Impact of the New Revenue recognition Policy (applicable
from quarter one, 1996)
Fiscal year
Revenue as
Unearned
Change in
Revenue
reported
revenue
unearned
adjusted
balance
revenue
(adjusted as
though the
revenue
recognition
policy had not
been changed)
1995:
$6 075
$0
$0
$6 075
1996:
9 050
560
560
9 610
1997:
1998:
1999:
(b)
Based on the discussion of Microsoft’s software capitalisation policy in seminar 5 and
your answer to Question1 (a) above, describe Microsoft’s overall financial reporting
strategy.
In your opinion, why had the company adopted this strategy? Explain.
(Hint: Your explanation should be supported by reference to at least two to three
academic research articles. Concentrate on the general results of the articles. You do
not have to completely understand the statistical/econometric models).
(9 marks)
(c)
In your opinion was the SEC concerned about Microsoft’s overall financial reporting
strategy? Explain.
(3 marks)
THE INTERPLAY BETWEEN MANAGERS, ANALYSTS AND CAPITAL MARKETS
Question Two (Total marks: 9)
(a)
Are there any benefits to companies to being outwardly pessimistic about their
future prospects? Explain.
(Hint: Your explanation should be supported by reference to at least two to three
academic research articles. Concentrate on the general results of the articles. You do
not have to completely understand the statistical/econometric models).
(6 marks)
(b)
In your opinion, did Microsoft provide analysts with information that was
intentionally overly pessimistic? Explain.
(3 marks)
ETHICAL
Question 3 (Total marks: 6)
In your opinion, did the management of Microsoft engage in improper reporting of
earnings? Explain, including a consideration of the possible consequences of alternate
reporting choices that could have been made by managers.
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