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CA's 'material weakness' leads to more accounting woes

Six-year bookkeeping journey

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CA this week extended its poor accounting streak, announcing that it will delay reporting fourth quarter and full year financial results. The delay stems from the software maker's failure to record sales commission expenses correctly.

Instead of reporting earnings per share of 2 cents in the fourth quarter as it once forecasted, CA now expects to post a 7 cents per share loss. Much of this swing comes from an extra $70m in sales commissions that, erm, weren't properly recorded. This accounting snafu builds on an ugly bookkeeping history at CA and a spate of recent executive departures.

"This increase in sales commission expense resulted from a new sales commission plan that did not appropriately align commission payments with the Company’s overall performance," CA explained in a statement.

CA will restate its third quarter earnings to reflect $26m in additional commission expense charges that should have been recorded in the past. In addition, it has delayed the release of fourth quarter and full-year figures and cancelled a June 8 conference with financial analysts. (Wouldn't that meeting have been fun?)

Beyond all that, CA has admitted to having some serious accounting woes.

"The Company also will report a material weakness in its financial controls relating to the forecasting, processing, and monitoring of sales commissions," CA said. "As stated above, the Company has not concluded its review of this matter and further adjustments may be necessary."

Last month, CA's former CEO Sanjay Kumar joined a number of former executives in pleading guilty to taking part in an accounting scandal that saw the company make use of the so-called "35 day month." This accounting method allowed CA to book extra revenue during certain sales periods.

When Kumar handed in his guilty plea, CA's new management proclaimed, "We are a dramatically different organisation than we were two years ago" with an "infrastructure that promotes integrity, compliance and good governance."

CA's current CEO John Swainson had a different message this week.

“Clearly we are disappointed that what would have been a solid year was impacted by execution issues relating to commissions, which adversely affected our fourth quarter performance and led to a restatement of our third quarter results," Swainson said. "We are making changes to ensure that these problems do not recur, and are confident going forward that our value proposition of helping customers manage and secure their enterprise IT environments is sound."

In recent months, CA has lost its CFO, COO and CTO. ®

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