CA denies FBI is probing its accounting

Computer Associates Wednesday said it is not aware of any federal investigation into its accounting practices.

"We have not been contacted by the authorities regarding any investigation and do not know what, if anything, is being investigated. If there are questions, we look forward to being contacted and to having the opportunity to defend against hearsay and what we believe will prove to be unwarranted concerns," CA said in a brief statement. The company was responding to a report published earlier Wednesday in the newspaper Newsday.

Representatives at the FBI and U.S. attorney's office could not immediately be reached for comment.

Citing "several sources familiar with the investigation," Newsday reported that the FBI and the U.S. attorney for the Eastern District of New York have launched a preliminary investigation into whether CA's accounting practices violated federal criminal fraud laws. The report cited a former CA employee who said that the U.S. attorney's office had contacted him several weeks ago with questions about how CA has reported revenue in its financial statements.

This is not the first time CA has publicly refuted a newspaper story about its accounting practices. Last April, CA asserted that the financial reporting in its monthly earnings statement was sound and that there had been no attempt to obfuscate real earnings. The move was in response to an article in The New York Times newspaper reporting that the software company had used accounting practices to make it appear as if it were booking more new licensing revenue than it actually was.

According to the Newsday report, the federal investigation into CA's accounting practices is only in the initial stages and there is no evidence of criminal activity. Still, those leading the investigation are trying to determine if CA had properly distinguished in its accounting between the revenues received from software sales and the fees received for the service, upgrade and maintenance of those software products.

The company's most recent financial report, released last month for its third fiscal quarter of 2002, was the first to provide a year-over-year comparison since the company adopted a new business model in late 2000. Under the new model, CA encourages customers to purchase software through subscriptions and then reports its revenue ratably over the term of its contracts.

On a pro forma basis, calculating the value of historical contracts on a ratable basis and excluding amortization of acquisitions and special one-time charges, CA posted earnings per share of 71 cents, significantly higher than the consensus estimate of 60 cents compiled by Thomson Financial/First Call.

The company pointed out that using standard accounting principles, CA had revenue for the quarter of $749 million, down from $783 million in the third quarter of 2001. CA posted a net loss of $231 million, which it pointed out was an improvement on its loss of $342 million during the same period in the previous year.

The IDG News Service is a Network World affiliate.