Computer Associates 2006 Annual Report Download - page 117

Report of the Independent Registered Public Accounting Firm
The Board of Directors and Stockholders CA, Inc.:
We have audited management’s assessment, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting (Item 9A(b)), that CA, Inc. and subsidiaries did not maintain effective internal
control over financial reporting as of March 31, 2006, 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). CA, 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, 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.
(ii) The Company’s policies and procedures relating to controls over the accounting for sales
commissions were not effective. Specifically, the Company did not effectively estimate, record and
monitor its sales commissions and related accruals. The Company also did not reconcile its commission
expense accrual to actual payments on a timely basis. These deficiencies resulted in a material error in the
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