Shares of Oracle fell about 2.6 percent to $39.23 in after-hours trading.
In a complaint filed in US District Court in San Francisco, the former executive, Svetlana Blackburn, accused upper management of trying to push her to "fit square data into round holes" to make Oracle Cloud Services' results look better.
"We don't agree with the allegations and intend to vigorously defend the matter," Oracle spokeswoman Deborah Hellinger said.
Blackburn said her bosses instructed her to add millions of dollars of accruals for expected business "with no concrete or foreseeable billing to support the numbers," and said executives above her added accruals on their own.
Like many legacy software companies, Oracle faces a dilemma with the move to cloud computing - essentially software in servers in data centers accessible through the internet rather than traditional packaged software. The older type of software still generates massive profits for Oracle.
Last quarter, Oracle's traditional on-premises software sales shrank slightly compared with a year earlier, but still generated $6.35 billion in revenue, 70 percent of total revenue for the quarter. In comparison, cloud revenue was $735 million, or 8 percent of the revenue, but grew by 40 percent.
The Redwood City, California-based company has come under considerable pressure from younger and smaller cloud-first companies such as Salesforce.com Inc, whose chief executive delights in mocking Oracle's cloud strategy.
Oracle has invested aggressively in its cloud business over the last few years in a bid to gain market share in the cloud. Safra Catz, Oracle's co-chief executive, said in March that the cloud business was in a "hyper-growth phase."
Blackburn said Oracle terminated her employment on Oct. 15 last year, one month after the alleged wrongdoing began and two months after she received a positive performance review.
She said Oracle had come to view her as "more of a roadblock than a team player who would blindly generate financial reports using improper bases in order to justify the bottom lines that her superiors demanded to see."
V.J. Chetty, a lawyer for Blackburn, declined additional comment.
Blackburn's lawsuit also accused Oracle of violating the anti-retaliation provisions of the federal Sarbanes-Oxley corporate governance and Dodd-Frank financial-reform laws. It seeks punitive damages, double back pay and other remedies.
© Thomson Reuters 2016