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CA restates results, identifies weak financial controls

CA restates results, identifies weak financial controls

Computer Associates filed its delayed annual report on Thursday, restating results again and identifying two "material weaknesses" in its financial controls.

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Computer Associates International filed its delayed annual financial report on Wednesday, formalizing another round of financial restatements that the software vendor hopes will let it finally leave behind the shadows of its troubled past few years.

CA warned last month that it would need to once again tweak its reported results as it works to mop up the aftermath of an accounting scandal that had the company prematurely booking more than US$2 (AU$2.6) billion in sales. In April 2004, CA filed its initial restatements covering its 2000 and 2001 fiscal years; after a continuing investigation, it decided it would also need to restate more recent results. Thursday's filing includes amended results for CA's fiscal years 2001 through 2005, which ended March 31.

The latest reclassifications are small, however: For 2005, CA reduced its revenue by US$6 million, to US$3.53 billion. Its net income for the year rose by US$1 million, to US$13 million. In a call with analysts last month to discuss CA's quarterly results, executives including Chief Executive Office John Swainson and Chief Operating Officer Jeff Clarke said that CA felt even minor adjustments were important to make, to demonstrate the new management team's commitment to accurate accounting.

In keeping with that spirit of full disclosure -- and to comply with Sarbanes-Oxley Act provisions requiring companies to disclose potential trouble spots -- CA said in Wednesday's report that it has found two "material weaknesses" in its internal financial controls.

During the last fiscal year, CA managers in EMEA (Europe, the Middle East and Africa) did not consistently follow company policies and "[failed] to foster a culture of integrity and high ethical standards in the region," CA said in its annual report filing to the U.S. Securities and Exchange Commission. It cited "conflicts of interest" related to the use of vendor services, along with efforts to frustrate an internal investigation of the matter. CA said that over the last few months it has replaced its general manager, head of procurement, head of facilities and assistant general counsel for EMEA, and plans additional training and segregation of responsibilities for staffers in the region.

The second weakness CA cited related to the use of "credits" under CA's prior business model, which was discontinued during CA's 2001 fiscal year, when the company switched from recognizing revenue up-front to recording it gradually over the life of its contacts. CA plans to maintain a separate schedule of credits granted by contracts executed under the old business model, and will review those credits each quarter to determine the best way to account for them.

"Upon identifying these control deficiencies, we have acted swiftly and decisively to implement the changes necessary to correct the problems," Chief Financial Office Bob Davis said in a prepared statement.


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