Letter from Prison Harvard Case Solution & Analysis

Problem Statement

Computer Associates International, Inc. (CA) is currently facing the problems related to the financial fraud allegations against the company. As, the company finds it more difficult to accurately forecast the revenues as well as earrings for each quarter of their sales targets.

Company overview

A Letter From Prison Case Solution

A Letter From Prison Case Solution

Computer Associates International, Inc. (CA) is founded by the Charles Wang in the year 1976 in order to meet the growing needs of the mainframe computing software for IBM computers. Moreover, the company offers a variety of products that include database, application and financial management software in order to meet the computing necessities of the businesses. The most of the software products are sold by the sales team of the Computer Associates to the clients who buy a license to use the product for a period between three to ten years.

Additionally, Computer Associates provides the software updates and technical support to its clients during the period of licensing. The fee of the licensing charged by the Computer Associates 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 oldness.

The amount of the fee that is charged by the company to its clients could be amounted to hundreds of thousands of dollars. The Computer Associates distributes the revenues 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. Mostly the 80% of the revenue is allocated to the licensing fee.

The significant part of the company revenue is normally booked during the final week of the quarter. During each quarter the management sets internal sales targets for the sales team with the sales incentives are given to the immune pressure to meet these sales targets. The company showed huge growth during the 1990s, even with the challenges and pressures.

Case Analysis

The case analyzes the overall situation of the Computer Associates International Inc. (CA) related to the allegation about the financial fraud within the company by a few executives of the Computer Associates. The management of the company found it hard to forecast accurate results for the revenues and earnings for each quarter in the year. As, before the end of the quarter, the management of the company found it incompetent to warn the specialists about the unexpected shortfalls in the revenue.

Additionally, the various larger contracts resulted in the shortfall in the revenue of the company’s products as these contracts are those that are close on the final day of the quarter. Due to the decrease in the revenue of the Computer Associates affected the stock price of the company that reduced the Computer Associates stock by 42%.

There is an allegation about the company that is published in an article in the New York Times, and according to this, Computer Associates have excessively implemented the approach of aggressive accounting practices in order to boost the earnings. But there are several evidence that proves that all the accounting practices of the company are according to the generally accepted accounting principles.

This allegation also gets the attention of the federal investigators who showed dissatisfaction with the internal investigation of the company. Due to this allegation the company has faced much criticism that greatly impact the standing of the Computer Associates (CA) and requires other ways to make investigation done efficiently so, the company hire the prestigious law firm in order to investigate more aggressively.

It is determined from the investigation that the few employees of the Computer Associates (CA) had backdated the some of the contracts as well as  it also appeared that the revenues related to such contracts had been recognized  after the end of the quarter. While, the revenues linked with these software contracts must be recognized in the in the quarter in which the contract has been signed.

Therefore, the three executives of the company are forced to give the resignations due to this improper revenue recognition. In addition to this, six executives along with the Richard are caught to be involved in the financial fraud due to which Richard the SEC filed a formal complaint against the Richards and at the same time he resigned from the Computer Associates International Inc...................

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Stephen Richards, the former global head of sales in the company Computer Associates, Inc (CA), is serving a seven-year prison sentence for financial fraud. In the case of Richards answers a series of questions relating to administrative responsibility and manipulate financial results in a letter written in graduate school. "Hide
by Eugene Soltes Source: HBS Premier Case Collection 16 pages. Publication Date: December 03, 2009. Prod. #: 110045-PDF-ENG

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