Letters from Prison Essay

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Letters from Prison

Sadly when reading this article the most amazing lesson that jumps to mind is how easy it is for a bright business manager and a growing company to run into trouble for failing to follow basic business measurement principles. Constant vigilance and observance of the financial documents is imperative to ensure a healthy growth for any company and professional career.
Computer Associates International, Inc. (CA) was a four-person start-up founded in 1976. CA produced software for IBM computers to assist businesses with database, application, and financial management software related computing needs. Stephan Richards joined the company in 1988 as a recent college graduate and had a meteoric run directly up the …show more content…

As long as a manager clearly directs his accounting team and managers to respect the matching (Process threw which expenses associated with revenue are identified and measured), conservatism (safeguarding against overstatement of asset values and owners’ equity), consistency (requiring that once an entity has selected an accounting method for a kind of event or a particular asset, that the same method should be used for all future events of the same type and for that asset), and materiality (ability to recognize which an accountant does not need to attempt to measure and record as significant or insignificant events on the financial reports) concepts as the company continues to grow than the company will be in good health.
Revenue recognition and its important role cannot be ignored in this analysis. CA clients were delaying signing of contracts leveraging time in their favor to obtain better discounts. If Stephan had changed his sales method (through monitoring of his internal controls and proper risk assessment) to resolve how his clients were leveraging the contract signing timeline in their favor he would have prevented the situation giving birth to the need of improper revenue recognition. Perhaps he would have provided discounts for early contract signers that outweighed the late signing benefits, thus revenue could be more accurately predicted and recognized without needing to backdate contracts. The accounting problem that ultimately led Stephen to jail

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