Question a Letter from Prison

In: Business and Management

Submitted By ummifadhilah
Words 273
Pages 2


Q1. How serious were Stephen Richards’ actions? If Computer Associates achieved the same financial results within “allowed accounting flexibility”, will this change your answer?

Q2. Richards describes how difficult it is to operate in the “gray areas of accounting” and wanted more guidance from senior management. Do you agree or disagree with him? If you were placed in the same position as Richards, how would you handle the situation? What are the options that you think you would face in deciding what to do?

Q3. Step back and consider management’s incentives and choices. What are Computer Associate’s motivations to manage earnings and the financial value represented by the statement of financial position? What type of corporate governance structures in firms have been identified by the research as a flag, or indicator, that a firm is more likely to manage/manipulate financial accounting outcomes?


Q4. Comment on the GAAP standard that allows software firms to recognize the entire value of the licensing contract as revenue in the quarter that the contract was affirmed. Do you think this accounting treatment contributed to the culture at Computer Associates? Why or why not?

Q5. Exhibit 4 provides an overview of the inflated recorded revenue and EPS. Is it important for Computer Associates to meet analyst estimates? Why or why not?

Q6. Does accounting management/manipulation have an impact on stock prices? (Hint: What are the mechanistic and no-effect hypotheses in accounting?) What other evidence might you collect to analyse whether the actions of Richards in accelerated revenue influenced stock trading behaviour or provided information to investors in the stock…...

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