Oracle’s accounting practices come under cloud

Software firm denies charges; analysts see pressure to better cloud sales

San Francisco, June 6: A whistleblower lawsuit filed against Oracle Corp over its accounting practices underscores the pressures that established computer companies face to show that they are growing in the fast- moving business known as the cloud.

The lawsuit, filed on Wednesday in US District Court in San Francisco by former Oracle senior finance manager Svetlana Blackburn, also revives longstanding questions about proper accounting when software and computer services are bought on a subscription basis rather than as a single package, analysts said.

Those questions are becoming more urgent as companies including Oracle, IBM, Microsoft and SAP race to transform their businesses for an era in which customers no longer own and operate their own information technology systems and instead lease computing services and software from cloud vendors using vast data centres.

Ms Blackburn’s lawsuit accuses Oracle management of pushing her to “fit square data into round holes” to make Oracle’s cloud services’ results look better. She alleges that her bosses instructed her to add millions of dollars of accruals for expected business “with no concrete or foreseeable billing to support the numbers.”

“We are confident that all our cloud accounting is proper and correct,” an Oracle spokeswoman said on Thursday, adding that Ms Blackburn worked at Oracle for less than a year and was terminated for poor performance.

Ms Blackburn does not use the word “fraud” in her lawsuit, and analysts say outright fraud is unlikely.

Nevertheless, the situation poses risks, said Pat Walravens, an analyst at JMP Securities, partly because Oracle’s sales force has been offered big incentives to book cloud deals. An Oracle spokeswoman did not immediately respond to a request for comment about the incentives. Oracle shares fell almost four per cent the day after the lawsuit was made public.

Accounting for cloud software “can get very complex and requires judgment calls and estimates which a third party might disagree with upon further review,” Walravens added. Because cloud software is growing fast while traditional software sales slow, firms have an incentive to play up their prowess in the cloud.