Computer Associates 2006 Annual Report Download - page 80

Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with
participation of the Company’s Chief Executive Officer and acting Chief Financial Officer, has conducted an
evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on
Form 10-K. During this evaluation, management identified material weaknesses in the Company’s internal control
over financial reporting (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)), which
are discussed in (b) below. The Company’s Chief Executive Officer and acting Chief Financial Officer have
concluded that, as of the end of the period covered by this annual report on Form 10-K, the Company’s disclosure
controls and procedures were not effective as a result of these material weaknesses.
(b) Management’s report on internal control over financial reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The
Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted its evaluation of the effectiveness of internal control over financial reporting as of
March 31, 2006 based on the framework in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment included an
evaluation of the design of the Company’s internal control over financial reporting and testing the
effectiveness of the Company’s internal control over financial reporting. During this evaluation, management
identified material weaknesses in the Company’s internal control over financial reporting, as described below.
Management has concluded that as a result of these material weaknesses, as of March 31, 2006, the Company’s
internal control over financial reporting was not effective based upon the criteria in Internal Control — Integrated
Framework issued by COSO.
A material weakness is a control deficiency, or a combination of control deficiencies, that result in more than a
remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or
detected. Management has identified the following material weaknesses as of March 31, 2006:
(i) The Company did not maintain an effective control environment due to a lack of effective
communication policies and procedures. Specifically, (a) there was a lack of coordination and
communication among certain of the Company’s senior executives with responsibility for the sales
and finance functions and within the sales and finance functions regarding potentially significant
financial information; and (b) there were communications by certain senior executives that failed to set a
proper tone, which could discourage escalation of information of possible importance in clarifying or
resolving financial issues. These deficiencies resulted in more than a remote likelihood that a material
misstatement of the annual or interim financial statements would not be prevented or detected and
contributed to the material weaknesses in internal controls described in items (ii) and (iii) below.
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