Computer Associates International (CA) has received notice from the US Securities and Exchange Commission (SEC) that the agency is considering civil enforcement action against the company for possible violations stemming from improper revenue recognition.
CA, one of the industry's largest software suppliers, has been the target of a joint SEC and US Department of Justice (DOJ) investigation for two years, following reports that the company manipulated its accounting to mask slowing sales.
CA revamped its business model and accounting structure in late 2000 to recognise licensing revenue gradually, rather than all at once when a contract is signed. The change makes CA's financial results more transparent, but it also made comparisons with earlier quarters difficult, the company said.
CA's board has been conducting its own investigation into the company's past accounting practices. Three top financial executives, including CA's chief financial officer, resigned in October after preliminary results from that investigation showed that CA booked some sales prematurely during its financial year which ended 31 March 2000.
CA said it has received a Wells Notice from the SEC, which provides the officers of a company under investigation with an opportunity to submit to the SEC written statements explaining why an enforcement action should not be brought.
RBC Capital Markets analyst Sarah Mattson said she viewed the Wells Notice as the logical next step in the investigations. If any criminal charges are filed against CA, they will come from the DOJ, which does not provide information on its inquiries.
Stacey Cowley writes for IDG News Service