Oracle Whistleblower Suit Raises Questions Over Cloud Accounting

The recent lawsuit on Oracle Corporation

over improper cloud accounting highlights the amount of pressure being faced by the legacy organizations to show their growth in the fast growing cloud business. Oracle's former senior finance manager Svetlana Blackburn sued the company for allegedly terminating her for complaining about improper accounting practices in Oracle's cloud services business. Read more: http://www.benzinga.com/news/16/06/8060563/oracle-shares-hit-amid-report-of-former-manager-suit-over-improper-cloud-accounti#ixzz4AoPtwKGE A Reuters report puts the spotlight on the longstanding questions about proper accounting when software and computer services are bought on a subscription basis rather than as a single package. http://www.reuters.com/article/us-oracle-lawsuit-accounting-idUSKCN0YS0X1 The subject matter of the case (cloud accounting) is relevant not only for Oracle, but also for IBM International Business Machines Corp.

, Microsoft Corporation

and SAP SE (ADR)

as they are pushing hard to transform their businesses to a cloud era. Blackburn alleged 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 Blackburn worked at Oracle for less than a year and was terminated for poor performance. Pat Walravens, an analyst at JMP Securities, told Reuters that the situation poses risks partly because Oracle's sales force has been offered big incentives to book cloud deals. An Oracle spokeswoman did not immediately respond to a Reuter's request for comment about the incentives. Accounting for cloud software "can get very complex and requires judgment calls and estimates which a third party might disagree with upon further review," Reuters said quoting Walravens. The report said U.S accounting rules state that in cases when use is mixed, companies should allocate the revenue between traditional, or licensed software; and cloud, or hosted software. There lies the gray area, says Enterprise Strategy Group analyst Dan Conde, and the point on which the Oracle lawsuit might hinge. "They can't tell how much I use my own hardware," he said. "Am I a casual user, or writing a lot on a computer? It then requires some guesswork there." At the time of writing, shares of Oracle rose 1.18 percent to $39.56.