Sanjay Kumar, the former chief executive of CA Inc., pleaded guilty to securities fraud and obstruction of justice charges stemming from a scheme that used backdated contracts to falsify the U.S. company’s quarterly earnings reports.
The plea ends the career of a Sri Lankan immigrant who climbed to the top of the corporate ladder and made a fortune in the U.S. high-technology boom. Mr. Kumar now faces a maximum 90 years in prison if the eight counts to which he pleaded result in consecutive sentences. However, lighter sentencing of 10 to 30 years might be dictated under federal guidelines.
At the software company formerly known as Computer Associates, Mr. Kumar first gained note as the protégé of company founder Charles Wang. Together, the two built a fast-growing enterprise adept at taking over smaller companies specializing in software for corporate back offices.
But in 2000, when the company abruptly announced a change in auditors and accounting methodology, revenue started to plummet. The Securities and Exchange Commission began investigating in 2002 and eventually referred the case to the U.S. Justice Department, which has secured a number of guilty pleas of top CA Executives..

Required:
1. Refer to Exhibit 7.1, which describes the 2003 annual incentive compensation plan for top executives at Computer Associates International. (Details of the accounting abuses at Computer Associates are described in Chapter 1.) What features of this plan might have contributed to the illegal backdating of sales contracts?
2. Stock options and company shares comprised a substantial portion of Kumar’s personal wealth. How might these equity-based incentives have contributed to the illegal backdating of sales contracts?
3. Why would Computer Associates’ outside auditor have difficulty spotting the contract backdating?