November 1998 Issue

REPORT TO AUDIT COMMITTEE REVEALS DETAILS OF ACCOUNTING IRREGULARITIES

Portions of the report by Willkie Farr & Gallagher and Arthur Andersen LLP to the audit committee of the board of directors of Cendant corporation on their investigation of accounting irregularities was published late last summer on Cendant's website (www.cendant.com). The report gives details as to the manner in which the earnings of the former CUC businesses acquired by cendant were overstated by approximately $500 million before taxes during the 1995­1997 period.

The following were among the findings:

* The purpose of many of the irregularities was to adjust earnings to meet the expectations of financial analysts.

* Senior management failed to have in place appropriate controls and procedures to detect irregularities.

* Merger reserves were used to close the gap between actual results and what had been reported to the public.

* The presence of irregular revenue recognition, understatement of reserves, delays in recording credits, and recording of fictitious receivables.

Cendant committed at least two of the hocus pocus practices that SEC chair Arthur Levitt raised in his speech at New York University (see related article on page 8). It is also quite conceivable that the issue of materiality, another area that requires tightening up, also entered into the equation at Cendant. *



Home | Contact | Subscribe | Advertise | Archives | NYSSCPA | About The CPA Journal


The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.


©2009 The New York State Society of CPAs. Legal Notices

Visit the new cpajournal.com.