Computer Associates 2007 Annual Report Download - page 72

(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.
Remediation of the Fiscal Year 2006 Material Weaknesses
(i) During fiscal year 2007, the following actions were taken by management with respect to the remediation of our material
weakness in internal control over financial reporting related to an ineffective control environment due to a lack of effective
communication policies and procedures:
•Personnel and organizational changes:
•Appointments of a new Chief Operating Officer in April 2006, a new Chief Administrative Officer in June 2006 and a
new Chief Financial Officer in August 2006;
•Reorganization of the sales function including:
•Establishment of direct reporting of the field sales organization to the Chief Operating Officer in June 2006;
•Appointment of a Senior Vice President Sales Operations with direct reporting to the Chief Operating Officer in June
2006;
•Implementation of recurring meetings with representation from key departments including legal, finance, operations and
human resources to address operating and financial performance, as well as the identification, tracking and
communication of information of potential significance to financial reporting and disclosure issues began during the
quarter ended September 30, 2006; and
•Ongoing communications by management to and with the Company’s employees and the provision of focused training,
relating to ethics, the Company’s Code of Conduct and its core values.
(ii) During fiscal year 2007, the following actions were taken by management with respect to the remediation of our material
weakness in internal control over financial reporting related to accounting for sales commissions:
•Reviews of commissions accounting procedures by the Internal Audit Department;
•Appointment of a quality review team to assess the adequacy and efficacy of the business processes, IT Systems and
financial oversight for the administration of sales commissions during the quarter ended June 30, 2006;
•Formalization of policies and procedures including communication and reporting responsibilities among the Company’s
sales, human resources and finance functions to ensure that the administration, payments of and accounting for
commissions expense were coordinated commencing in the quarter ended December 31, 2006;
•Reconciliation of commission expense accruals to actual commission payments on a quarterly basis began during the
quarter ended September 30, 2006; and
•Creation of a Commission Plan Committee (the “Committee”), during the quarter ended September 30, 2006, to oversee
changes to the Company’s Incentive Compensation Plan and related processes, in order to enhance the Company’s ability
to monitor, timely pay, estimate, and accrue for sales commissions. The Committee provided oversight of changes to
simplify the CA Incentive Compensation Plan that took effect October 1, 2006.
(iii) During fiscal year 2007, the following actions were taken by management with respect to the remediation of our material
weakness in internal control over financial reporting related to the identification, analysis and documentation of non-routine
tax matters include the following:
•Review of the tax department’s policies and procedures including its use of external advisors began during the quarter
ended December 31, 2006;
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