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Letter from Prison

In: Business and Management

Submitted By ctremitiere
Words 1072
Pages 5
OVERVIEW

Stephen Richard is an executive at Computer Associates(CA), which sells software products with licenses lasting between three and ten years. The company has a “sales-driven-culture” which is “the more you sell, the more commissions you will get”. Richard is responsible for monitoring when contracts are signed and when the payments for those contracts are assured. Obviously he failed in his job because he was incarcerated on April 24, 2006.

The accounting department recorded its sales in the current quarter while these sales should be recorded next quarter, which took place at the fourth quarter of 1998 and the second quarter of 2001. According the evidence and the proclamation of prosecutors from the DOJ and SEC, the CA accounting department did not follow the GAAP. However, Richard asserted that this way of accounting was not as costly and significant as the WorldCom or Enron corruption cases because these two companies went bankrupt. Richard is also very confident that once released from prison, he will be able to continue his accounting career.

The process in which CA recorded its sales revealed numerous inaccurate accounting principles and concepts. According to the article, the accounting department recognized revenue while the contract was signed. It follows the accrual concept that revenue is recognized not only when cash transactions occur. Since the contracts were signed, the revenue could be received earlier or later. Accural accounting helps to provide a more accurate picture of current company conditions. However, CA’s accounting strategy was to recognize next quarter revenue in the current quarter, which increased the revenue in the current quarter. Despite knowing that next quarters revenue would decrease, CA accountants knew the current financial statement look good enough to cloud the minds of investors and shareholders’ about…...

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