Under a settlement with the Securities and Exchange Commission, the software giant neither admitted to nor denied wrongdoing. No fine was imposed.

The SEC alleged that Microsoft's accounting practices from July 1994 through June 1998 caused its income to be substantially misstated.

The agency said Microsoft enhanced its financial results by setting aside artificially large reserves to reduce revenues, with the idea of reversing that procedure to record the revenues in less profitable times. The SEC said the reserves totaled between $200 million and $900 million during the period in question.

The SEC has criticized the use of such so-called "cookie-jar" reserves, which it says can give investors an inaccurate picture of the company's current financial performance.

The settlement comes as the SEC is investigating and acting against alleged accounting abuses at a number of big companies in the aftermath of Enron's collapse.

In April, Xerox Corp. agreed to pay a record $10 million civil penalty and revise its financial statements back to 1997 to settle the SEC's allegations of accounting fraud.

In addition to investigating Enron's accounting and the role of its auditor Arthur Andersen LLP, the SEC also is examining accounting practices of Global Crossing Ltd., the fiber optics company that entered the fourth-largest U.S. corporate bankruptcy in January. The agency also is investigating Halliburton Co. for a change in its accounting practices in 1998, while Vice President Dick Cheney was its chief executive.

The SEC did not allege fraud in the Microsoft case. It took the action in an administrative proceeding, a milder course than the civil lawsuits which the agency has the power to bring.

Still, SEC Enforcement Director Stephen Cutler said the case shows that the agency "will act against a public company that issues financial statements with material inaccuracies, even in the absence of fraud charges."

Microsoft, in a statement from its headquarters, said the settlement has no effect on its financial results.

"Microsoft has cooperated fully in the SEC's inquiry," it said. "The company is pleased to have resolved these matters with the SEC and looks forward to an open and constructive working relationship with the SEC on important accounting issues affecting the software industry.

The accord with the market watchdog agency is the second Microsoft settlement with the government in two years. In November, Microsoft and the Justice Department settled the four-year antitrust case in which a federal appeals court said Microsoft hindered competition in the software market through unfair tactics against emerging competitors.

A federal judge has yet to decide whether to approve a settlement, and nine states are still pursuing the case. Decisions on both fronts are expected in late summer.

The SEC alleged that Microsoft did not properly document the bases for its accounting and failed to maintain proper internal controls.

Microsoft disclosed the SEC's investigation in its annual report for 1999.

More than a year ago, Microsoft reportedly received a so-called Wells notice from the SEC, a warning that the company could face civil charges.

Chairman Bill Gates and other top Microsoft executives were deposed, and settlement negotiations began late last year.

Accounting rules generally allow businesses to set aside funds for potential expenses such as returned products, excessive inventory and bad debts. A higher estimate of those expenses reduces the amount of reported earnings.

The SEC investigation apparently stemmed from a lawsuit filed in 1997 by Charles Pancerzewski, a former Microsoft internal auditor who said he was wrongly fired for warning that the company's accounting reserve practices could violate SEC rules.

The case was settled and the record sealed after a federal judge cleared the way for the case to go to trial.