Press Release & Internal Memo

COM 530: Communications for Accountants


ISLANDIA, N.Y., October 10, 2004 — John Smith, Chairman and CEO of Company X International, Inc. (NYSE: CX) today announced actions taken in response to   results of an independent inquiry being conducted by the Audit Committee of CX’s Board of Directors.
As previously reported, the Company has been responding to a joint investigation by the United States Attorney’s Office for the Eastern District of New York and the Northeast Regional Office of the Securities and Exchange Commission. The investigation concerns accounting practices that were in place prior to CX’s adoption of its New Business Model in October 2000. The new model recognizes revenue monthly over the life of a software license agreement and replaced an up-front revenue recognition system. Recently, the company responded to government subpoenas that primarily related to the timing of revenue recognition in the fiscal year ending March 31, 2000.
In responding to the investigation, the board authorized the Audit Committee, chaired by outside director and former SEC Chief Accountant William Connell , to conduct an independent investigation into the timing of revenue recognition by CA.
Connell said: “The Audit Committee’s investigation is continuing, but we have determined that CX recognized certain revenue prematurely in the fiscal year ending March 31, 2000. The committee found that a number of software contracts in that fiscal year appear to have been signed after the end of the quarter in which revenues associated with such contracts had been recognized. Those revenues should have been recognized in the quarter in which the contract was signed.
“At the same time,” he continued, “the committee has found no evidence to suggest that the revenues and cash flows associated with these contracts were not genuine. The contracts were valid, products were delivered and cash was received. The...