IBM is working with US regulators on an investigation into how it reports revenues of its cloud computing business

SEC Investigates IBM Cloud Revenue Reporting

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IBM is working with US regulators on an investigation into how it reports revenues of its cloud computing business, according to a report by Reuters on Wednesday.

IBM learned of the investigation by the US Securities and Exchange Commission in May, and it made the disclosure in its quarterly report filed with the SEC. IBM shares fell as much as 1.7 percent in early trading on Wednesday.

“No details are provided about the nature of the SEC’s concerns,” a report by Seeking Alpha said. “However, it’s worth noting companies tend to receive payment for cloud software/services subscriptions up-front, and recognize this revenue over the life of the contract. The timing of such revenue recognition can present some accounting issues.”

IBM doesn’t disclose revenue it gets from cloud computing as it is spread across several divisions, but it said revenue from cloud services rose 70 percent in the first half of 2013, according to a report by Bloomberg. IBM expects to reach $7 billion in cloud revenue by 2015, a figure that should be helped along by its recent acquisition of cloud services provider SoftLayer. 

Last week, a US judge approved a $10 million agreement between IBM and the SEC to settle accusations of bribery in China and South Korea.

Three months prior, IBM disclosed that the US Department of Justice was investigating whether it violated the Foreign Corrupt Practices Act related to contracts in Poland, Argentina, Bangladesh and Ukraine.

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  1. I can tell you that what is happening here is far bigger than the accounting games played at Nortel.There is absolutely no way IBM has a rigerous process that tells them what their cloud revenues are. If that were the case then why is it that IBM has "error rates" and "adjustment factors" as high as 45%-50% applied to determining the revenue of certain businesses. I have complained about this for several years and such complaints are met with threats, shouting back, and retaliatory behavior. If the SEC cares to look with determination they will find that what I have said above is absolutely true.