Computer Associates 2007 Annual Report Download - page 73

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•Establishment of new documentation and analysis requirements for non-routine tax matters to ensure among other things,
that accounting conclusions involving such matters are thoroughly documented and identify the critical factors that
support the basis for such conclusions began during the quarter ended December 31, 2006; and
•Formalization of communication and review of non-routine tax matters between the tax function and senior finance
management began during the quarter ended December 31, 2006.
(iv) With respect to our material weakness in internal control over financial reporting related to the accounting for and
disclosure of stock-based compensation relating to stock options issued prior to fiscal year 2002, the development and
implementation of policies and procedures beginning in fiscal year 2002 have resulted in the timely communication of stock
option grants to employees. During the first quarter of fiscal year 2007, the Company implemented procedures that resulted in
the proper recognition and disclosure of stock-based compensation expense for stock options issued prior to fiscal year 2002.
(v) 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 subscription revenue when license agreements
have been cancelled and renewed more than once prior to the expiration date of each successive license agreement:
•Formalization of policies and procedures, as well as provision of training, on the identification, quantification and recording
of the impact on subscription revenue of such license agreements, which began during the quarter ended September 30,
2006.
As a result of the above measures, management has determined that the material weaknesses identified in fiscal year 2006
have been remediated as of March 31, 2007.
The Company’s independent registered public accountants, KPMG LLP, have audited and issued a report on management’s
assessment of the Company’s internal control over financial reporting. That report is included on the page set forth in the List
of Consolidated Financial Statements and Financial Statement Schedule.
Changes under the DPA
As previously reported, and as described more fully in Note 8, “Commitments and Contingencies”, in the Notes to the
Consolidated Financial Statements, in September 2004 the Company reached agreements with the USAO and SEC by
entering into the DPA with the USAO and by consenting to the SEC’s filing of a Final Consent Judgment (Consent Judgment) in
the United States District Court for the Eastern District of New York. The DPA required the Company to, among other things,
undertake certain reforms that would affect its internal control over financial reporting.These included making progress on the
implementation of a worldwide financial and enterprise resource planning (“ERP”) information technology system to improve
internal controls, reorganizing and enhancing the Company’s Finance and Internal Audit Departments, and establishing new
records management policies and procedures.
The Company believes that these and other reforms, such as procedures to assure proper recognition of revenue, have
enhanced its internal control over financial reporting. Meanwhile, the Company has complied with its obligations under the
DPA; and, as of May 21, 2007, the DPA has been concluded. For more information regarding the DPA, refer to the information
under the heading “Audit and Compliance Committee Report — Status of the Company’s Compliance with the Deferred
Prosecution Agreement and Final Consent Judgment” in the Company’s definitive proxy materials filed on August 9, 2006
with the SEC and to Note 8, “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements
contained in this Annual Report on Form 10-K.
Other Changes in Internal Controls over Financial Reporting
In the first and third quarters of fiscal year 2007, the Company migrated certain financial and sales processing systems to SAP,
an enterprise resource planning (“ERP”) system, at its North American operations.This change in information system platform
for the Company’s financial and operational systems is part of its on-going project to implement SAP at the Company’s
facilities worldwide, which is expected to be completed over the next few years. In connection with the Company’s
implementation of its ERP system for its professional services organization in November 2006, the Company experienced
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