Financial Accounting Blog

Friday, October 10, 2003

This article from discusses the resignation of two executives from Computer Associates in connection with revenue recognition improprieties. Unlike some of the cases we have discussed in class, the investigators (for the moment, anyway) are not accusing the executives of falsifying revenues, just recognizing them at the wrong time.

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.