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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."
Oracle is certainly to blame.
For the accounting firms, it depends on how good of a quality and nature of the lie is in the books. The accounting firm can only comment on whether the records they receive are consistent and have a correct process based on their inputs. If the wrong stuff is far enough upstream of the books, there's a GIGO problem.
Of course, by the time you reach that point, you've got even more blame on Oracle because then the intent to deceive becomes a lot more clear, since somewhere along the line folks (like the whistleblower in question) who put in that data have to be told to make shit up. Whether the point at which they were making stuff up is at a point a good audit would catch, I don't know. I am not an accountant, nor do I have any special insight into Oracle's bookkeeping process.
"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.
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.
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.