What CA Stands for

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Does CA stand for Computer Associates (NYSE: CA) or Creative Accounting? The market's trying to figure that one out after the software specialist disclosed that three executives -- including its CFO -- would be stepping down as a result of an internal accounting probe.

According to the auditing committee looking into the case, it appears that Computer Associates recorded revenue from contracts signed after the close of its 2000 fiscal year during its final March quarter. The deals were real and ultimately completed. They were simply backdated.

As far as white-collar crimes go, adjusting revenue recognition may seem the equivalent of ripping out mattress tags. But it's more complicated than that. Inflating fiscal 2000's results at the expense of fiscal 2001 carries some menacing implications. Investors who bought in on both sides of the cheat were lied to. Any performance bonuses rewarded as a result of the doctored numbers were unearned.

And, quite frankly, the software sector doesn't need the aggravation. Companies like Microsoft (Nasdaq: MSFT), Oracle (Nasdaq: ORCL) and PeopleSoft (Nasdaq: PSFT) produced some dynamic gains for investors through the 1990s, but the grass hasn't exactly been greener on this side of the millennium.

Where Computer Associates goes from here -- after today's logical dip -- remains to be seen. The fact that the three executives remained with the company may lead a cynic to wonder just how many of its past few fiscal years of financial statements can be swallowed at face value.

On the upside, auditors are doing the dirty work now. Stroll through the handiwork or previous cases of accounting irregularities and more often than not you will find companies that have little choice but to go the extra mile to make sure that their future reports can be trusted.

Yes, that extra mile is often walked barefoot over shards of broken glass, but the journey to become credible and fully accountable is worth the pain.

How will Computer Associates' admission play into the software sector? Will the industry suffer from one company's lack of integrity nearly four years ago? All this and more -- in the Oracle discussion board. Only on Fool.com.