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IBM Avoids Penalty as SEC Concludes Cloud Revenue Investigation

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IBM has avoided a government penalty as the US Securities and Exchange Commission has wrapped up its investigation into how IBM reports cloud revenue.

According to a report by the Wall Street Journal on Monday, SEC’s division of enforcement doesn’t intend to recommend any enforcement action against IBM.

Back in July, IBM made the disclosure of the SEC investigation in its second-quarter report. At the time, there weren’t many details released about the nature of the investigation, but some suspected that since companies tend to receive payment for cloud software and services upfront, and recognize the revenue over the life of the contract, the timing of revenue recognition can present accounting issues.

According to WSJ, while IBM said at the time that it was confident in the accuracy and consistency in its information, after IBM disclosed the infromation, it changed the way it described cloud revenue in subsequent earnings press releases to make the description more clear.

For example, while IBM typically reported its cloud revenue growth rate, it didn’t break out the size of cloud revenue or say what portion of revenue was delivered as a service. In its third quarter report, IBM clarified that cloud revenue exceed $1 billion with $460 million being delivered as a cloud service.

This week, IBM announced the opening of SoftLayer’s new Hong Kong data center, the first of 15 new data centers that will help bring its cloud services to companies around the world.

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