A Letter From Prison Memo

Topics: Management, Fiscal year, Gaap Pages: 2 (579 words) Published: April 14, 2015
MEMORANDOM
TO:
FROM:
DATE: April 12, 2015
SUBJECT: A Letter From Prison

Stephan Richards, former global head of sales at Computer Associates, is currently serving time in federal prison. Richards was accused and convicted of facilitating the extension of the fiscal quarter, allowing subordinates to obtain contracts after the quarter ended, and failing to alert the finance and accounting departments about contracts that may have been backdated. Doctoral student, Eugene Soltes, has contracted Richards and asked him questions regarding the incident and how managerial responsibilities affected his decisions.

The Seriousness of Stephen Richards Actions
Stephen Richards manipulated Computer Associate’s quarter end cutoff to better align results with market expectations. Richards failed to take the Generally Accepted Accounting Principles (GAAP) into consideration without realizing the implications of his actions. Richard’s actions boosted Computer Associates reported earnings, by employing overly aggressive accounting practices. Exhibit three states, “within the accrual accounting system, manager have significant discretion with their firms’ accounting choices. Management has the ability to make choices that can opportunistically lead to higher or lower reported earnings” (A Letter from Prison page 14). Richard’s addresses this managerial flexibility in a question asked by Eugene explaining that the lines between legal and illegal became very blurry. The seriousness of Richard’s actions landed him seven years in the Taft Federal Correctional Institution in California. Though we are only speaking of the revenue being recognized two or three days early or two to three days late, the actions were illegal and misleading to shareholders. Richard’s knew of the wrongdoings, by him self and other upper level management, and chose not to report it, even though he was in the position to do so.

GAAP Flexibility
If Computer Associates achieved the same...
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