IBM and others facing the cloudy business of accounting for the cloud

Found via @HowardSchilit.

FORTUNE -- Last week's disclosure that the Securities and Exchange Commission is conducting an investigation into how IBM reports its cloud computing revenue poses more questions than answers. The New York-based tech giant admitted it has been cooperating with the SEC since last May but said little else about the particulars of the case. One thing is clear: It's likely this won't be the last probe into the often inconsistent methods used to account for software-as-a-service products.

The cloud itself isn't the problem -- it's the way it happens to be packaged and sold. Unlike traditional, on-premise software, cloud-based tools are usually paid for via multi-year contracts. Customers are charged a monthly subscription fee, which means a recurring revenue stream that can be tricky to account for because it spans the course of several years (and because, sometimes, customers back out of contracts). This gets especially complicated at large companies that lump cloud-computing sales in with non-cloud products.

"Accounting rules were written when we were all trading goods with each other," says Tien Tzuo, CEO of Zuora, a billing platform used by many cloud computing companies. "As we move away from a manufacturing economy to a service economy it gets pretty complex."

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Maybe the key excerpt for investors: 

According to Cowen & Co.'s Goldmacher, investors should pause before becoming too enamored with subscription-based revenue, however attractive a recurring revenue stream may seem: "... we are concerned that investors are taking false comfort in these models because the income statement and balance sheet can be lagging indicators on the real trajectory of the business," he wrote in a recent report. But Goldmacher is also quick to note that it's unlikely anything nefarious is going on, even if the SEC has reason to launch an investigation. "My belief is that this is just really complicated," says Goldmacher. "The more complicated an undertaking the more likely you are to make a mistake."