US Federal authorities are investigating Microsoft's practice of setting aside some of its software revenues and recognising them later, the computer giant's chief financial officer, Mr Greg Maffei, has confirmed.

He told reporters and analysts that the US Securities and Exchange Commission (SEC) apparently launched the investigation after a newspaper report drew attention to a dispute over whether the company dips into its "cookie jar" of reserves to smooth financial results.

"We don't know the entire scope other than it relates to reserves and reserve policies," Mr Maffei said. Microsoft, which employs 1,200 people in the Republic, is co-operating fully with the SEC, he said.

The brief Wall Street Journal article referred to a lawsuit brought by a former company auditor who charged he was wrongfully sacked after raising questions about so-called "cookiejar" accounting.

Microsoft, well-known for its conservative financial reporting practices, has consistently said it follows industry guidelines in deferring recognition of revenue from products such as Windows and Office to account for later delivery of upgrades and support.

Microsoft began the practice with the launch of Windows 95. It said such software was becoming more like magazine subscriptions that are paid for up front and delivered over months or years. Since then such "unearned revenue" on the company's balance sheet has grown to more than $4 billion (€3.9 billion).

The SEC declined even to confirm the investigation, although chairman, Mr Arthur Levitt, has waged a campaign against improper use of reserves to pad corporate results in later quarters.

Analysts said they were not concerned by the SEC inquiry.

"I think it's much ado about nothing because you can still see the revenue and track it," said analyst Mr Chris Galvin of Hambrecht and Quist. "It's not like they're holding back."

Mr Bill Epifanio, an analyst with JP Morgan, said Microsoft's accounting practices had been consistent and conservative.

"Given the size of their revenues it's turned into quite a valuable asset for them in terms of helping them smooth out their results," he said.

He and others said Microsoft stock could go higher on separate remarks by Mr Maffei indicating that business in the quarter just ending was at least as strong as expected.

The remarks came as Mr Maffei disclosed that Microsoft was adjusting its reserve policies to comply with new accounting guidelines and recognise more Windows and Office revenue up front.

Mr Maffei said the change was unrelated to the SEC inquiry and had been discussed with the agency.

The change will add about one cent a share to Microsoft earnings in the fiscal fourth quarter that ended on Wednesday and another one cent a share in fiscal 2000, he said.

Mr Maffei said the company had reclassified revenue and expenses from four relatively small businesses, including product support and Internet access.

The change had the effect of adding about $2 billion in revenues over the past 11 quarters, boosting the total by about 5 per cent, although because of related expenses, the company's reported net earnings were not affected.