Accounting probe 'keeps CA under a cloud'

Computer Associates International will continue operating under a cloud until the US government completes its investigation of...

Computer Associates International will continue operating under a cloud until the US government completes its investigation of its accounting practices, said chairman and chief executive officer Sanjay Kumar.

Several government agencies and CA's own board are conducting investigations of the company's accounting in the late 1990s.

Three top financial executives, including CA's chief financial officer, resigned in October after preliminary results from the board inquiry showed that CA booked some sales prematurely during its financial year ending 31 March 2000.

Former senior vice-president of finance Lloyd Silverstein pleaded guilty last month to accounting fraud and told investigators of a "widespread practice" at CA of booking revenue from software contracts before the deal was signed.

Kumar, who took over as CA's chief executive officer in August 2000, served as the company's president and chief operating officer at the time when the improper accounting was alledged to have taken place. He defended his conduct as a company executive.

"I don't think it'd be fair for me to get into all the facts, given that there is an outstanding investigation," he said. "You're looking at the person who advocated the new business model. You're looking at the person who went to the board and said, 'We have to come up with a better way to run this company.' ...I believe my actions have been proper with respect to this matter."

In November 2000, CA adopted a new business and accounting model which focused on selling software by subscription and recognised revenue gradually throughout the life of a contract, rather than all at once as a deal is signed.

The model made comparisons to previous periods difficult, but provided greater stability and transparency. By the end of last quarter, more than 60% of CA's revenue came from subscriptions, said acting chief financial officer Doug Robinson.

While analysts are generally comfortable that CA's existing accounting practices are above board, questions remain about how penalties for its past actions will affect the company - and about how much accountability for those actions will, ultimately, attach to entrenched executives such as Kumar.

The US Securities and Exchange Commission is likely to bring a civil enforcement action against CA.

"We recognise that [the penalties] can be serious for a problem like this, but we're hopeful we'll resolve the problem in a positive way," Kumar said.

Stacy Cowley writes for IDG News Service

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