Computer Associates 2005 Annual Report Download - page 99

Table of Contents
(ii) Since the Company’ s original 2005 Form 10-K was filed on June 29, 2005, an additional material weakness in the Company’ s
internal control over financial reporting as of March 31, 2005 has been identified. At March 31, 2005, the Company did not have policies
and procedures to identify, quantify, or record the impact on subscription revenue when a prior business model license agreement (i.e.,
license agreements entered into before October 2000 that resulted in upfront software license revenue recognition) was superseded by a
subscription based license agreement prior to the expiration of the prior business model license agreement. Subsequent to the filing of
the Company’ s original 2005 Form 10-K, the Company determined that there was an accounting error in that the revenue recorded on
renewals of certain prior business model license agreements, when superseded by a subscription based license agreement prior to the
expiration of the prior business model license agreement, was not always recorded on a straight line basis over the life of the new
subscription based license agreement. In October 2005, the Company restated its financial statements for fiscal years 2005 through 2002,
and for the interim periods in fiscal years 2005 and 2004, to reflect the correction of these accounting errors. This restatement is
discussed further in Note 12 (b) to the accompanying consolidated financial statements.
(iii) At March 31, 2005, the Company had an ineffective control environment in its Europe, Middle East and Africa (“EMEA”) region.
During fiscal year 2005, members of management in the Company’ s EMEA region failed to support consistent application of policies
and procedures and to foster a culture of integrity and high ethical standards in the region. This resulted in overlooking of conduct
involving conflicts of interest with the Company relating to the use of vendor services, overriding Human Resources’ procedures and
attempts to frustrate and discourage the reporting and investigation of improper conduct.
Each of the aforementioned material weaknesses in internal control over financial reporting individually 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.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Computer Associates International, Inc. and subsidiaries as of March 31, 2005 and 2004, 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,
2005. The aforementioned material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in
our audit of the 2005 consolidated financial statements, and this report does not affect our report dated June 29, 2005, except as to Notes
9 and 12 (b) to the consolidated financial statements, which are as of October 18, 2005, which expressed an unqualified opinion on those
consolidated financial statements.
In our opinion, management’ s assessment that Computer Associates International, Inc. and subsidiaries did not maintain effective
internal control over financial reporting as of March 31, 2005, 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, Computer Associates International, Inc. and subsidiaries has
not maintained effective internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control
— Integrated Framework issued by COSO.
Management and we previously concluded that the Company did not maintain effective internal control over financial reporting as of
March 31, 2005 because of the material weaknesses described in (i) and (iii) above. In connection with the restatement of the Company’ s
consolidated financial statements described in Note 12 (b) to the consolidated financial statements, management has determined that the
material weakness described in (ii) above also existed as of March 31, 2005. Accordingly, management and we have restated our
respective reports on internal control over financial reporting to include this additional material weakness.
/s/ KPMG LLP
New York, New York
June 29, 2005, except as to the seventh and tenth paragraphs of Management’ s Report on Internal Control over Financial Reporting (as
restated), which are as of October 18, 2005
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