Computer Associates 2005 Annual Report Download - page 98

Table of Contents
Report of the Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Computer Associates International, Inc.:
We have audited management’ s assessment, included in the accompanying Management’ s Report on Internal Control Over Financial
Reporting (as restated) (Item 9A(b)), that Computer Associates International, Inc. and subsidiaries did not maintain effective internal
control over financial reporting as of March 31, 2005, because of the effect of material weaknesses identified in management’ s
assessment, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Computer Associates International, Inc.’ s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management’ s assessment and an opinion on the effectiveness of the Company’ s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management’ s assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A 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. A company’ s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) 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 (3) 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. 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.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses
have been identified and included in management’ s assessment as of March 31, 2005:
(i) At March 31, 2005, the Company did not have policies and procedures over the accounting for credits attributable to software
contracts executed under the Company’ s prior business model that were sufficient to prevent or detect the improper accounting for
credits initially established under side agreements entered into during fiscal years 1998 through 2001. As a result of this deficiency, the
Company’ s internal control over financial reporting did not detect the material misstatements that were made as a result of the prior
period accounting errors related to the entry into the aforementioned side agreements. In May 2005, the Company announced that it
expected to restate its financial statements for fiscal years 2004 through 2002, and to make appropriate adjustments in its interim
financial statements for fiscal year 2005, to eliminate the effects of certain prior-period accounting errors. Certain of these errors resulted
from software license agreements that the Company entered into in fiscal years 1998 through 2001 which were altered by side
agreements that, if correctly accounted for, would have prevented the full recognition of related revenue until later periods. This
restatement is discussed further in Note 12 (a) to the accompanying consolidated financial statements.
57