| Accounting for suspicion
San Francisco, June 3 (Reuters): International Business Machines Corp said on Monday the US Securities and Exchange Commission (SEC) had begun a formal investigation of how the world’s largest computer company accounted for some revenue in 2000 and 2001.
IBM, based in Armonk, New York, said in a statement that it “believes the investigation arose from a separate SEC investigation of a customer of IBM’s retail store solutions unit,” which sells electronic cash registers and other point-of-sale products.
IBM shares fell almost 3 per cent to $ 85 on electronic trading network Instinet after the announcement, which raised the spectre of the accounting scandals of Enron, WorldCom and others that have undermined investor confidence.
“This is big news because it goes back to the old accounting scandals that have shaken investor confidence, starting with Enron,” said Burton Schlichter, senior market analyst with Lind-Waldock & Co, a division of Refco LLC.
The retail solutions unit is part of IBM’s personal systems division, and IBM does not break out revenue for that unit, said spokesman Bill Hughes.
“The SEC is seeking information relating to revenue recognition in 2000 and 2001 primarily concerning certain customer transactions,” Hughes said.
IBM dominates the market for point-of-sale systems, and its customers include major retailers in the United States.
Hughes said he would not name the customer.
A number of major retailers are being scrutinised by the US regulators for accounting practices.
The SEC advised IBM that it has not reached any conclusions related to this matter, IBM said. The company added that it is co-operating with the federal agency.
“IBM believes that its business and accounting policies comply with all applicable regulations,” the company said.
A spokesman for the SEC declined to comment on the matter.