Ronna Abramson

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SEC Asked About CA's Accounting Last Fall

Ronna Abramson

Four months before confirming that it's under investigation by the Securities and Exchange Commission and U.S. attorney's office, Computer Associates (CA) received a letter from the SEC asking numerous questions about the pro forma accounting it used under its new business model.

The Oct. 26, 2001, letter, obtained by research firm SEC Insight under a Freedom of Information Act request, asked Computer Associates to explain how its pro forma pro rata numbers differ from accounting under generally accepted accounting principles.

The Islandia, N.Y., company began reporting pro forma pro rata numbers at the end of 2000 to compare revenue collected each month under its new business model with revenue collected upfront under the previous model.

The SEC letter, targeting the company's form 10-K for the year ended March 31, 2001, and 10-Q for the three months ending June 30, 2001, also asked the world's fourth-largest software maker to report software licenses separately from maintenance services, explain how commissions changed under the new model, and disclose typical payment terms, among other questions on such issues as acquisitions and legal matters.

It isn't clear whether the October letter relates to the investigation. It came from the SEC's corporate finance division -- not its enforcement division, which would be responsible for investigating the company. Computer Associates has said it doesn't know why it is being investigated, but many have speculated that the investigation is related to its controversial accounting.

Another letter dated Dec. 13 from the SEC asked Computer Associates to break out its various revenue sources more precisely, to cite more specific reasons for changes in its year-to-year financial results and to caution investors on the alternative figures, The Wall Street Journal reported Monday.

Nothing Unusual?

When Computer Associates executives confirmed the investigations by the SEC and U.S. attorney's office on Feb. 22, they said they did not know the subject of the investigation and maintained that their only contact with the federal agency has been "over routine matters." CA spokesman Jim Barron said Friday that the October letter was routine. He said the company resolved the accounting questions with the SEC in January.

But John Gavin, president of SEC Insight, whose library has more than 10,000 pages of SEC documents, suggested the October letter to CA was not routine. "The existence and content of the October 2001 SEC letter challenges the notion that CA has been completely forthcoming with investors regarding SEC matters," Gavin said in a research note sent to clients Thursday. "In our opinion, some of CA's statements on Feb. 22 about its SEC involvement were misleading."

An SEC official declined to comment on the Computer Associates letters.