Download A Letter From Prison PDF

TitleA Letter From Prison
Tags Economies Employment Fraud Stakeholder (Corporate)
File Size90.2 KB
Total Pages7
Document Text Contents
Page 1

A Letter from Prison

Written Analysis of the Case

I. Summary of the Case
A student of the University of Chicago, Booth School of Business, Eugene Soltes, made a

list of questions to Stephen Richards, a former global head of sales at Computer Associates,

about his opinion on the allegations against Computer Associates that happened during the year

2000s. Computer Associates International, Inc. (CA) began in 1976, and was established by

Charles Wang, who wanted to feel a growing need for mainframe computing software for IBM

computers. CA offered variety of products that includes database, application, and financial

management software. Most of the software products are sold by the sales team to clients who

purchase a license to use the product for a period between three to ten years. CA also provides

software updates and technical support to its clients during the period of licensing. The fee of

licensing charged by the CA to the clients increases with the length of the contract, as well as

each additional licensing year was priced lower as compared to the previous year in order to

reflect software obsolesces. The CA distributes the revenues obtained from the clients to

licensing fees as well as to usage and maintenance fees once the contract of the license between

the company and the client is finalized. At least 80% of the revenue is allocated to the licensing

fee. Generally, under GAAP, revenues from software licensing were recognized once a contract

was signed, the software was delivered, and payment was reasonably assured. Once all of the

three conditions are met, a software firm could recognize the entire value of the licensing fee as

revenue. In accordance with GAAP, CA recorded the entire present value of the licensing

contract in the quarter when the revenue recognition criteria were met. CA has a “sales-driven

culture” that sales associates were under immense pressure to meet the sales targets. Each

quarter, management sets internal sales targets for the sales team. Sales associates who met or

exceeded their sales targets were handsomely rewarded with the sales incentives are given to the

immune pressure to meet these targets. In the early 2000s, the management found it hard to

accurately forecast revenues and earnings for each quarter in the year, and found that they are

unable to warn the analysts about the unexpected shortfalls in revenue. There is allegation about

fraud within the company by few executives of the CA. The CA had greatly implemented the

approach of aggressive accounting practices in order to boost the earnings. But evidences proved

that the company is applying all the accounting practices in accordance with GAAP. This

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