IBM Under SEC Investigation for Accounting Practices

IBM is under investigation by the U.S. Securities and Exchange Commission over its accounting practices, according to a regulatory filing. Shares dropped in the wake of the disclosure.

The investigation looks at how IBM is accounting for some of its transactions in the U.S., the U.K. and Ireland, which could have an impact on its stated revenue. The company said it was alerted to the investigation in August and is cooperating with the commission.

In a statement on the investigation, IBM defended its accounting practices as “rigorous and disciplined,” adding that it is “confident that the results and information we report have been appropriate and consistent with GAAP,” or Generally Accepted Accounting Principles.

The investigation appears to center on how Big Blue recognized revenue on certain deals. That’s accounting-speak for whether a company considers itself to have been paid for delivering a product or a service.

Since we don’t know what transactions are involved, we can only speculate about what the SEC might be digging into. The fact that transactions in the U.K. and Ireland are also under scrutiny gives us another clue. Those countries use a different set of accounting rules, known as the International Financial Reporting Standards, or IFRS.

Toni Sacconaghi, an analyst with Sanford Bernstein in a research note said the disclosure focused on “certain transactions. “We suspect these words were chosen carefully,” and may indicate that the investigation is narrowly focused. “That said, investigations can and often do broaden in scope.”

It’s also not the first time that IBM has been investigated by the SEC: The commission probed IBM over its revenue recognition practices in 2003 and in 2005-6 investigated its stock based compensation practices. Last year it closed an investigation into how IBM recognized revenue on its cloud software products. None of these investigations led to any adverse resolutions for IBM Sacconaghi wrote.

IBM shares fell by more than 4 percent closing at $137.85, after the news was announced.

This article originally appeared on Recode.net.

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