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Computer Associates May Face Suit Over Accounting

Jan 12, 2004 | Wall Street Journal

Computer Associates International, Inc. said Monday that the government may file civil charges against the software concern over its premature recognition of revenue from software licensing contracts.

The company, which is facing a joint probe into its accounting practices by the Department of Justice and the Securities and Exchange Commission said it has received a ""Wells Notice" from the staff of the SEC, which notifies the company that SEC staff may recommend a civil enforcement proceeding against it for possible violations of the federal securities laws.

Under SEC procedures, Computer Associates has the opportunity to respond to the SEC before the agency makes a formal recommendation.

In October, Computer Associates said its fiscal second-quarter results included a $100 million after-tax charge for settlements of shareholder lawsuits, which questioned the veracity of the company's accounting.

At the time, Computer Associates gave little additional detail about its internal investigation into accounting irregularities, which led to the forced resignations of its chief financial officer and two other finance executives. The inquiry found that sales contracts in fiscal 2000 had been booked as revenue before being signed, pushing revenue into earlier quarters.

Interim Chief Financial Officer Doug Robinson said then that any irregularities appear to be limited to the financial period prior to October 2000. At that time, Computer Associates switched to a different method of booking contracts. Computer Associates also said its independent auditor, KPMG LLP, did not provide its usual review of the fiscal second quarter's financials because of the board's continuing investigation.

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