The Islandia, New York-based system management software vendor claims that its financial accounting has been in order since 2001, but a period of accounting fraud in the fiscal years between 1998 and 2001, which led the company to restate its revenue from fiscal 2000 and 2001 in April 2004, continues to cast a shadow over CA.

The complexity involved with unraveling CA’s accounting is not helped by the fact that the company changed to a subscription-based licensing model in 2001. The latest restatement stems from a number of newly discovered improper license agreements struck between 1998 and 2001, as well as the impact of side agreements on license agreements struck between 1998 and 2001, and an accounting error in the way revenue was recorded on renewals in the old model.

The impact of the side agreements on subsequent financial periods is being rectified by restating $13m of revenue recognized in the first quarter of 2005. Meanwhile, the improper agreements appear to have no valid commercial purpose according to CA’s filing with the Securities and Exchange Commission.

Those two issues combined have the effect of reducing the balance of retained earnings for the period ended March 31, 2002 by $42m. The additional impact is an increase in software fees and other revenue by $23m and $15m in fiscal years 2004 and 2003 respectively, a decrease in operating expenses of $16m in 2003, and a decrease in the loss from continuing operations of $14m and $20m in 2004 and 2003 respectively.

The company also stated that it will record additional other revenue in the future as a result of the restatement of approximately $19m through fiscal year 2009.

Additionally, the accounting error related to renewals being converted to the subscription licensing model has the cumulative impact of increasing the balance of retained earnings for March 31, 2002 by $10m, and increasing total revenue by $30m for fiscal 2005, $21m for fiscal 2004, and $15m for fiscal 2003.

The loss from continuing operations is also decreased by $19m in 2005, $13m in 2004, and $9m in 2003, while a reduction to revenue in the future is expected to be around $80m between fiscal 2006 and fiscal 2011.

Three former CA executives pleaded guilty to criminal charges in April 2004, admitting that the company had practiced the 35-day month, in which accountants and salespeople would keep the books open beyond the end of the fiscal quarter until they had acquired enough revenue to meet Wall Street estimates.

CA’s former chief executive, Sanjay Kumar, pleaded not guilty on all ten counts of securities fraud conspiracy, obstruction of justice and conspiracy to obstruct justice in September 2004 but could face up to 100 years in jail if found guilty.

The company’s former head of worldwide sales, Stephen Richards, has also pleaded not guilty, while several executives have entered a guilty plea to related charges, including former general counsel Steven Woghin, former senior VP of finance Lloyd Silverstein, former VP of finance David Rivard, former senior VP of finance David Kaplan, and former CFO Ira Zar.

The company has revamped its board of directors, and senior executives in the interim, and has brought in strict corporate governance controls that prompted the US Department of Justice to agree to defer prosecution of the firm.