1. How serious was Stephen Richard’s actions? Why?

Stephen's actions were gravely serious as he used targets set by outside parties such as the
analyst community to please them instead of keeping the Generally Accepted Accounting
Principles (GAAP) in consideration when deciding regarding the financial responsibilities of
Computer Associates. As the head of global sales at Computer Associates, the role of Stephen
was majorly responsible for the fraud incident. He facilitated the fraud by first manipulating
Computer Associate's quarterly report by extending the fiscal quarter of the Company. This
allowed the sales force to obtain the contracts even after the quarter end and boost the reported
quarterly earnings.
He failed to alert the finance and accounting departments about contracts that may have been
backdated. All these practices and decision was not coherent with the GAAP.
According to the letter Richard wrote, he believes his actions were motivated by the constant
pressure of upper management. However, it does not refute the fact that instead of improving the
performance-driven culture that prioritized sales, Richard's actions led to increased earnings
reported by Computer Associates. Richard had meetings with the CFO after the fiscal quarter
had ended. They discussed revenues made by Computer Associates, and the three window
process they used to ensure Computer Associates had generated enough revenue to match its
quarterly projections was also against the GAAP principles. Despite being in a position where he
could make these wrongdoings right and report them, he acted otherwise.
This brought the attention of the DOJ and SEC towards Computer Associates and they
investigated the potential wrongdoings as they found enough evidence to prove that the Stephens
illegally facilitated the backdating of many contracts.
2. If Computer Associates achieved the same financial results using GAAP flexibility, does
your answer to question 1 change?
My answer to question 1 does not change even if Computer Associates achieved the same
financial results using GAAP flexibility. The culture that was being encouraged by the
management of Computer Associates was a performance-driven one that prioritized sales instead
of one that would curb fraud in the organization. Computer Associates under its management
promoted a targets driven culture in a way that it violated many other rules of accounting and
reporting that would create ultimate losses to shareholders.
Delay of software release or product, defers the recognition of any revenue received for that
product and Computer Associate promoted that culture as these practices arise from flexibility in
accounting choices and management’s ability to determine and change real business decisions as
per their discretion which was misused here.
The actions will be still considered illegal and misleading to shareholders which was the case
here. Hence, it remains unacceptable.