A Hard Lesson Learned

SAB 101 Singes

SAN FRANCISCO -- SAB 101 is not the code name of some deadly chemical, but if Monday's action in MicroStrategy (MSTR Quote) is any indication, it is highly explosive.

SAB 101 is the shorthand reference to a bulletin on revenue recognition issued by the Securities and Exchange Commission last December. You can find the entire ruling here, but in a nutshell it says companies can't record revenues until after they've received the cash for a given service.

MicroStrategy said it was revising its accounting practices to conform with SAB 101 and thus would have to restate earnings for the past two years. Since earnings restatements are almost always of the downward variety (and this was no exception) MicroStrategy's stock was summarily and mercilessly cut by 60%. ...