A letter from prison
Richard is the executive of Computer Associates. His company sells software products which usually have licence last for a period of three to ten years. The company has a “sales-driven-culture” which is “the more you sell, the more commissions you will get”. Richard is responsible for keep an eye on things like when the contracts are signed and when those payments are assured. It seems that he failed on his job because he was put in jail on April 24, 2006. The accountant department had recorded the sales in the current quarter while these sales should be recorded in the next quarter, which took place at the fourth quarter of 1998 and the second quarter of 2001. According the evidence and the proclamation of prosecutors, the action account department has taken was not following the GAAP. However, to the word of Richard himself, this way of accounting was not a really big deal like the WorldCom bankrupt or Enron bankrupt. And he is also very confident to continue developing his career in the future after he is released from the jail.
1. Sumarize the lessons learned by you from reading this article. The way that Computer Association records its sales has pointed out several accounting principles and concepts. According to the article, the account department recognized revenue while the contract was signed. It follows the accrual concept that revenue is recognized not only when cash transactions occur. Since the contracts were signed, the revenue could be received sooner or later. The accrual accounting helps to provide a more accurate picture of current company condition. However, Computer Association made an aggressive accounting strategy that some of the revenue of next quarter was recognized in the current quarter, which increases the revenue in the current quarter. Though the revenue of next quarter will decrease, the current financial statement will look good and eventually cloud the investors and shareholders’ mind of...
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