IBM under investigation by SEC over cloud computing revenues

SEC 'conducting an investigation' into IBM's cloud revenue recognition policies

Systems and services giant IBM is being investigated by the US Securities and Exchange Commission (SEC) over the reporting of its revenues from cloud computing.

The news was buried within one of the company's latest regulatory filings. Indeed, the statement in its second quarter financial results 10-Q filing is brief:

"In May 2013, IBM learned that the SEC is conducting an investigation into how IBM reports cloud revenue. IBM is cooperating with the SEC in this matter."

IBM said that its cloud revenue grew by 80 per cent in fiscal 2012 and that the company expects cloud revenue to grow to $7bn annually by the end of 2015. Big Blue is committed to driving open cloud standards and is a key backer of the OpenStack open cloud platform.

Cloud computing typically entails an up-front payment to set up the service, followed by a monthly or quarterly subscription, based on various usage metrics. In theory, these payments ought to be recognised on a regular basis throughout the life of the contract - but some companies may account for them differently.

The software industry has repeatedly been involved in accounting scandals over revenue recognition - the financial periods when they can (and should) legally recognised revenues on their profit and loss accounts.

And the SEC investigation into IBM, which analysts have suggested is "routine" - may lead to further investigations into companies in the sector to ensure that they do not mislead investors.