An Analysis of A Letter from Prison
1. How serious were Stephen Richards’ actions? Why?
Stephen Richards’s actions were extremely serious; manipulating Computer Associates’ quarter end cutoff to align CA’s reported financial results with market expectations by violating the generally accepted accounting principles and their financial reporting responsibilities. According to the U.S. Securities and Exchange Commission, Richards with other CA executives extended CA’s fiscal quarter, “ instructed and allowed subordinates to negotiate and obtain contracts after quarter end while knowing, or recklessly disregarding the fact that, CA would improperly recognize the revenue from those contracts, and failed to alert CA’s Finance or Sales Accounting Department that CA salespersons that reported to Richards were obtaining contracts with backdated signatures dates after quarter end.” (Release)
Richard in his letter writes that his self and the CEO exerted significant pressures on their team to meet the goals that they had set for themselves, also Richard mentions that performance was measured by internal goals in accordance with the expectation set by outside parties, analyst community, specifically to meet Wall Street quarterly per-share earnings estimates, “a key to keeping a company’s stock price rising.” (Wharton) Richards with the CEO allegedly met routinely and conferred with each other and with Zar (CFO) during the week following the end of fiscal periods, including during the “flash period”, the three business days after the end of fiscal quarter, to determine whether CA had generated sufficient revenue to meet the quarterly projections, and closed CA’s books only after they determined that CA had generated enough revenue to meet the quarterly projections, this practice, which was sometimes referred to within CA as the “35-day month” or the “three-day window”, violated GAAP and resulted in the filing of materially false financial statements. (NY) The goal of the 35-day month was to permit CA to report
Stephen Richards’s actions were extremely serious; manipulating Computer Associates’ quarter end cutoff to align CA’s reported financial results with market expectations by violating the generally accepted accounting principles and their financial reporting responsibilities. According to the U.S. Securities and Exchange Commission, Richards with other CA executives extended CA’s fiscal quarter, “ instructed and allowed subordinates to negotiate and obtain contracts after quarter end while knowing, or recklessly disregarding the fact that, CA would improperly recognize the revenue from those contracts, and failed to alert CA’s Finance or Sales Accounting Department that CA salespersons that reported to Richards were obtaining contracts with backdated signatures dates after quarter end.” (Release)
Richard in his letter writes that his self and the CEO exerted significant pressures on their team to meet the goals that they had set for themselves, also Richard mentions that performance was measured by internal goals in accordance with the expectation set by outside parties, analyst community, specifically to meet Wall Street quarterly per-share earnings estimates, “a key to keeping a company’s stock price rising.” (Wharton) Richards with the CEO allegedly met routinely and conferred with each other and with Zar (CFO) during the week following the end of fiscal periods, including during the “flash period”, the three business days after the end of fiscal quarter, to determine whether CA had generated sufficient revenue to meet the quarterly projections, and closed CA’s books only after they determined that CA had generated enough revenue to meet the quarterly projections, this practice, which was sometimes referred to within CA as the “35-day month” or the “three-day window”, violated GAAP and resulted in the filing of materially false financial statements. (NY) The goal of the 35-day month was to permit CA to report