Several executives of Computer Associates International, including former CEO Sanjay Kumar, pleaded guilty to providing fraudulent financial statements. The scheme was built around the backdating of sales contracts to affect the results of quarterly reporting.

Required:

1. Refer to Exhibit 7.1, which describes the 2003 annual incentive compensation plan for top executives at Computer Associates International. 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?