Financial Accounting Blog

Monday, October 20, 2003

The article discusses the revenue recognition issues that have plagued Computer Associates. As a result of the audit committee's findings, the CFO and two other top executives have been asked to step down from their positions.

Finance Execs Resign from Computer Associates...Revenue recognition is at the heart of the issue.

In its continuing probe, the audit committee found "that CA recognized certain revenue prematurely in the fiscal year ending March 31, 2000," said Walter P. Schuetze, the committee's chair and a former SEC chief accountant.

Some software contracts signed in that year seemed to have been signed after the end of the quarter in which revenues associated with them had been had been recognized, according to Schuetze. "Those revenues should have been recognized in the quarter in which the contract was signed," he added. The committee, however, found no evidence "that the revenues and cash flows associated with these contracts were not genuine. The contracts were valid, products were delivered and cash was received."

In October 2000, CA started to book revenues over the life of the company's software licensing agreements. Before that, the revenues of entire contracts had been booked when the contracts were signed.