Computer Associates 2006 Annual Report Download - page 118

recognition of commission expense, which resulted in a restatement of the interim financial statements for the
three and nine-month periods ended December 31, 2005.
(iii) The Company’s policies and procedures relating to the identification, analysis and documentation of
non-routine tax matters were not effective. The Company’s tax function also did not provide timely
communication to management of its assumptions regarding certain non-routine tax matters. This
deficiency resulted in a material error in the recognition of taxes associated with the Company’s cash
repatriation, which occurred in the fourth quarter of fiscal year 2006.
(iv) The Company’s policies and procedures relating to the accounting for and disclosure of stock-based
compensation relating to stock options were not effective. Specifically, controls, including monitoring
controls, were not effective in ensuring the existence, completeness, valuation and presentation of the
Company’s granting of stock options, which impacted the Company’s determination of the fair value
associated with these awards and recognition of stock-based compensation expense over the related
vesting periods from fiscal year 2002 through fiscal year 2006. This deficiency resulted in material errors
in the recognition of compensation expense, additional paid-in capital, deferred taxes and related financial
disclosures relating to such stock options, which contributed to a restatement of annual financial statements for
fiscal years 2005 through 2002, and for interim financial statements for fiscal years 2006 and 2005.
(v) The Company’s policies and procedures were not effectively designed to identify, quantify and record
the impact on subscription revenue when license agreements have been cancelled and renewed more than once
prior to the expiration date of each successive license agreement. This deficiency resulted in material errors in
the recognition of revenue, which contributed to a restatement of annual financial statements for fiscal years
2005 and 2004, and for interim financial statements for fiscal years 2006 and 2005.
Each of the aforementioned material weaknesses in internal control over financial reporting resulted in more than a
remote likelihood that a material misstatement of the Company’s interim or annual financial statements would not
have been prevented or detected.
In our opinion, management’s assessment that CA, Inc. and subsidiaries did not maintain effective internal control
over financial reporting as of March 31, 2006, is fairly stated, in all material respects, based on criteria established in
Internal Control — Integrated Framework issued by COSO. Also, in our opinion, because of the effect of the
material weaknesses described above on the achievement of the objectives of the control criteria, CA, Inc. and
subsidiaries has not maintained effective internal control over financial reporting as of March 31, 2006, based on
criteria established in Internal Control — Integrated Framework issued by COSO.
In conducting the Company’s evaluation of the effectiveness of its internal control over financial reporting,
management has excluded the acquisition of Wily Technology, Inc., which was completed by the Company during
the fourth quarter of fiscal year 2006. Wily Technology, Inc. represented approximately $431 million of the
Company’s total assets as of March 31, 2006 and approximately $3 million of the Company’s total revenues for the
year then ended. The assets of Wily Technology, Inc. included approximately $232 million of goodwill and
$126 million of other intangibles at March 31, 2006. Our audit of internal control over financial reporting of CA,
Inc. and subsidiaries also excluded an evaluation of the internal control over financial reporting of Wily Technology,
Inc.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of CA, Inc. and subsidiaries as of March 31, 2006 and 2005, and the
related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-
year period ended March 31, 2006. The aforementioned material weaknesses were considered in determining the
nature, timing, and extent of audit tests applied in our audit of the 2006 consolidated financial statements, and this
report does not affect our report dated July 31, 2006, which expressed an unqualified opinion on those consolidated
financial statements.
/s/ KPMG LLP
New York, New York
July 31, 2006
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