PeopleSoft's Accounting Draws Critics

PeopleSoft subsequently sent customers a letter clarifying that the company meant the refunds would be triggered only if there was both a change in the board majority and an acquisition. But Oracle executives suggested that letter would not be legally binding.

PeopleSoft spokeswoman Dee Anna McPherson declined to comment on whether the SEC has contacted the company regarding the matter. "We are not really going to comment on this whole issue other than to say we're absolutely confident that the revenue was recognized appropriately," McPherson said Wednesday.

McPherson said the change in question was never included in any customer contracts but rather was put in an SEC filing by mistake and quickly corrected. However, a review of PeopleSoft's SEC filings indicated that some contracts signed before the end of the quarter did include the condition that only a change in the board majority could trigger the refunds. After the end of the third quarter, PeopleSoft inserted clarifying language into subsequent contracts so that refunds could only be triggered if the board changed and PeopleSoft were acquired, according to SEC filings.

The intent was always that only a change in the board triggered by an acquisition would require refunds to companies, McPherson said. "Under no circumstances could the liability ever be PeopleSoft's," she added.

SEC spokesman John Nestor said the agency does not comment on whether it is investigating a company.

Even if the SEC does look into PeopleSoft's revenue recognition, it's hardly a clear-cut question because PeopleSoft's refund program is unprecedented, accounting experts say.

Brendel said there are two ways to look at the accounting surrounding the refund program. PeopleSoft appears to be treating the potential refund as a "contingent liability," which must only be booked if it's probable the company will have to pay it. In its SEC filings, PeopleSoft said it believes execution of the refund program to be improbable.