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Oracle Whistleblower Suit Raises Questions Over Cloud Accounting (nbcnews.com)
Svetlana Blackburn, a former senior finance manager for Oracle claims that the company has fired her for not "inflating" revenues in its cloud services division. She alleges that her bosses had instructed her to add "millions of dollars of accruals" for expected business "with no concrete or foreseeable billing to support the numbers." Oracle eventually inflated the numbers without her assistance, anyway, she adds. From NBC News report: The lawsuit, filed on Wednesday in U.S. 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 centers.A spokesperson for Oracle says that Blackburn's claims are wrong, adding, "We are confident that all our cloud accounting is proper and correct."
"We are confident that all our cloud accounting is proper and correct." == "We are confident we paid off the right politicians to get nothing beyond a slap on the wrist for our doctored books."
Is it Oracle, for allegedly inflating their sales numbers? Or is it the accounting firms that audit the books and sign off on it? I have no horse in the race, just an honest question.
"We are confident that all our cloud accounting is proper and correct." == "We are confident we paid off the right politicians to get nothing beyond a slap on the wrist for our doctored books."
I'm a certified accountant (among other things). What it probably really means is that the rules are sufficiently poorly defined that Oracle figures they have enough weasel room to claim what they are doing is permissible. And they may be correct in that assertion. It also probably means that what they are doing won't result in any issue worse than a fine and probably will have minimal impact on their stock price or bottom line long term. I don't have any idea if Oracle is doing something illegal here or not but I'm not surprised they would make a statement like that. Could result in some fines after years of litigation but probably won't amount to anything material for them even if it should.
One of the problems (especially with intangible goods) is consistently determining when to book the goods as a sale. This often isn't as straightforward as you might think and there are often several potential acceptable answers. The important thing is that A) what method they are using is understood and made clear and B) that they follow it consistently. For example my company books a sale when we receive a purchase order from a customer. A cloud software company might choose to book the sale based on expected retention rates and then adjust the numbers later for bad debts based on actual cash received. There are accounting guidelines for what is generally considered acceptable and what isn't through the FASB, the IRS and some other government agencies like the SEC. Obviously making up sales out of whole cloth is clearly illegal but if there is anything backing up the numbers at all then it can get a lot fuzzier real fast.
Is it Oracle, for allegedly inflating their sales numbers? Or is it the accounting firms that audit the books and sign off on it?
The answer is Yes. As in both of them are at fault. If the auditing firm misses something big like that then they are potentially liable if Oracle really is inflating their numbers. Also the company management bears substantial responsibility as does the board of directors.
One thing to bear in mind however is that when an auditor signs off on the books they are NOT claiming that the books are absolutely correct to the penny. That would be impossible for a company of any significant size. What they are saying is that they believe the books are materially representative of the financial picture of the company. It would be impossible for them to claim that there were no errors or flaws in the books. Basically the best they can do is say "yeah, this is pretty close to reality and you can depend on these numbers for decision making". If they miss a big fraud then obviously the auditor screwed up and that is a big problem. But it also means that management screwed up (or lied) too.
The accounting firm can only comment on whether the records they receive are consistent and have a correct process based on their inputs.
That's not true at all. I'm an accountant and audits absolutely can and generally should investigate whether the records they review are factual and evidence based. In fact an auditor is supposed to look for evidence of fraud or mismanagement when doing a financial audit. If an accounting firm is not doing this when auditing the books for a large company then they are not doing their job properly.
If the wrong stuff is far enough upstream of the books, there's a GIGO problem.
That's when the auditor is supposed to decline to sign off on the books. Unfortunately audit firms have something of a conflict of interest. If they don't sign off on the books they might lose that client ($$$) and so they sometimes aren't are independent as they really should be.
My wife is a CPA and has changed jobs several times due to this kind of crap. the executives want the accounting department to lie on the books and fudge numbers.
She refuses to and has quit several places from time to time over this. Reporting it to the SEC every time. It's normal for executives to demand that laws be broken to make the books look better than they really are.
Considering more and more companies are using non-GAAP accounting measures [marketwatch.com] to deceive investors, it appears they've already determined what method to use while not making it clear what they're doing.
Well if you are a global company you aren't using GAAP outside the US anyway. You probably are using IFRS. If you are an investor seeing words like Pro-Forma you should . Pro-Forma is roughly translated from latin as "Fairy Tale" or "Bullshit we made up".
That being said, any accountant worth their per-diem can use GAAP accounting that is perfectly legal and still obfuscate what is really going on. Plenty of companies do it. Go pull the financial records of any large bank and if you claim you can make sense of them you are either in line for a Nobel prize or a liar and I'm going to lean towards the later. I'm a certified accountant and I can't make heads or tails of them.
Accounting rules are crazy. Whenever I have something explained to me by an accounting, I'm often baffled at how it works.
The most recent example was a customer who sold prepaid punch cards to their members for an activity. The member bought a punch card for $100, good for 10 activities which normally would have sold for $12.
Strangely (to me anyway), even though the organization got all $100 at once from their member when a card was bought, they only accrued income when a punch was used.
My customer didn't have time to teach me accounting 101 and I sort of get the short version that was explained to me, it still seems kind of bizarre that you actually *gain* $100 but don't actually count it except $10 at a time over time.
In their case, it seems extra weird because the punch cards never expired and so there's the risk they would be never redeemed. I didn't get the explanation as to how that part is accounted for. I mean, if they took in $10,000 for punch cards but members only redeemed $5,000, it seems weird that you would carry $5,000 in liabilities essentially forever yet still have the $5,000 in cash already in some other accounting-speak category.