THE CENDANT CORPORATION ACCOUNTING SCANDAL BCOM21

TABLE OF CONTENTS

ACKNOWLEDGEMENT 2 INTRODUCTION . 3 SUMMARY .. 4-7 COMPANY PROFILE 8 THE OFFICERS INVOLVE .. 9-15 DISCUSSION . 16-20 THE SETTLEMENT The settlement with Cendant 21-22 The settlement with Ernst & Young .. 23 THE BREAKUP 24 CONCLUSION .. 25 RECOMMENDATION .. 26 BIBLIOGRAPHY .. 27 APPENDIX 28-30

THE CENDANT CORPORATION ACCOUNTING SCANDAL BCOM21

ACKNOWLEDGEMENT

The researcher wish to acknowledge with gratitude the followings:

To Dr. Roderick M. Rupido, Dean of College of Economics, Management

and Development Studies, instructor, for his lecture given about technical writing that helps a lot to this research. To Mrs. Ludivinia Victorino, Department of Accountancy Chairperson who

given the task to this kind of research. And guide as in making this paper. To my parents who gave moral and financial support for doing this paper. To my friends and classmates To other sources And lastly to God Almighty who gives me guidance, strength and courage

to finish this paper.

-RESEARCHER

THE CENDANT CORPORATION ACCOUNTING SCANDAL BCOM21

INTRODUCTION

This

research

is

about

CENDANT

CORPORATION

accounting

irregularities. Cendant Corporation was a New York-based provider of business and consumers services, primarily within the real state and travel industries. In 2005 and 2006, Cendant broke up and spun off or sold its constituent business. Although the company was base in New York City, the majority Cendants headquarters employees were located in Parsippany-Troy Hills, New Jersey. The last CEO of Cendant was Henry Silverman. CENDANT CORPORATION was a product of Hospitality Franchise Systems (HFS) and CUC (Comp-U-Card) International Corporation, merge which was formed in December 1997. Accounting irregularities involve inflating of companys operating income. The scheme was driven by senior managements determination that CUC would always meet the earnings expectation of Wall Street Analysts and fueled by disregard for any obligation that the earnings reported needed to be real.

THE CENDANT CORPORATION ACCOUNTING SCANDAL BCOM21

SUMMARY

On May 27, 1997, the board of directors of HFS, Inc. and CUC International INC. approved a merger agreement that formed Cendant Corp., a conglomerate the specialized in travel and shopping-club memberships and internet marketing. Its divisions include Avis rental cars; the Howard Johnson, Days Inn, and Ramada Hotel chains. The combination was billed as a merger of equals. Henry Silverman, CEO of HFS, Inc., was selected as Cendants president and CEO, while Walter Forbes, CEO of CUC International Inc., was selected as the companys Chairman of the board. The merger was finalized in December, and Cendant's stock started trading on December 17, 1997, closing that day at $32.62. Following the merger, the company enjoyed immediate success and on April 6, 1998, its share price rose to a high of $41.69. The company was in the midst of many acquisitions, including the recently negotiated stock-and-cash acquisition of American Bankers Insurance Group. Unfortunately, the company was not progressing as well as the market believed. On April 9, 1998, the company announced that three former CUC executives were leaving the company, including Cosmo Corigliano, CUC's chief financial officer, and Amy Lipton, CUC's general counsel. During 1995, 1996, and 1997 the management of CUC booked phoney revenues in order to meet Wall Streets expectations for quarterly earnings. The 4

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falsified revenues totaled about $30 million in 1995, $87 million in 1996, and $176 million during 1997. Each year management recorded these fictitious revenues and increased accounts receivable, the reversed the entries in the fourth quarter to prevent auditors from finding them. To conceal this, they then booked revenue that should have been taken later and utilized financial reserves that were set up to cover cancellations for CUCs membership clubs in discount travel, shopping, and dining. At the end of 1996, the company also began dipping into reserves intended to cover acquisition charges in order to boost revenue. Credit card rejections were sometimes recorded late, inappropriate depreciation of certain assets, delayed recognition of insurance claims and accounting that didnt meet generally accepted accounting principles (GAAP). On April 15, 1998, Cendant released a shocking message after the markets had closed for the day. Company officials had discovered potential accounting irregularities in its core membership-club operations that will require it to reduce reported 1997 operating income by $10 million or more and that it will hurt this years earnings. The primary issue at hand was the method employed by the CUC unit in recognizing revenue in its club-membership sales. It was discovered that too much of the revenue was booked up front, while the recording of the expenses associated with the memberships was deferred until future periods. The following day, Cendants stock price plunged from $36.00 to $19.06 as an astounding 108 million shares traded hands. The average trading volume for the Cendant had been about 4 million shares per day.

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The following day its stock lost nearly $15 billion in market value and 8 lawsuits were filed by shareholders who claimed that the company made misleading financial statements. Twenty-six shareholders lawsuits would eventually be filed in all. CEO Henry Silverman was also affected by this drop as his options lost $370 million in value during 1998, a record among CEOs for the year. On July 14, 1998, the company sent a second shocking announcement to the market: to meet Wall Street earnings expectations, CUC had recorded nonexistent revenue of $300 million over a three-year period. The auditor of CUC Ernst & Young LLP committed myriad violations of Generally Accepted Accounting Principles, involving hundreds of millions of dollars of revenue and income. They issued unqualified audit opinions for the period involved. After announcing the expanded losses involved in the investigation, Cendant's stock price dropped to $15.69, a 52-week low. Subsequently, on July 29, 1998, mounting pressure from irate investors forced Walter Forbes to resign as Cendant's Chairman, along with ten other members of Cendant's Board of Directors formerly associated with CUC International Inc. Mr. Forbes received severance pay of $47.5 million, and Mr. Silverman was elected to succeed him as the company's new Chairman. Over the next few months, many factors forced the stock price even Lower. First, the SEC had instituted its own investigation into the company's accounting policies. The strict requirements mandated by the SEC from its investigation forced the company to downgrade its projected earnings for 1998. Second, as the stock price continued to decline, it became apparent that the 6

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company's planned acquisitions would be difficult to complete. Eventually, Cendant called off its planned acquisitions of Providian Auto & Home Insurance Co. and American Bankers Insurance Group, Inc. Third, the allegations of fraud created many lawsuits against the company. An investigation by Arthur Andersen LLP focused the responsibility for the fraud on Walter Forbes and the other dismissed CUC employees. Finally, the overall market experienced a decline in the third quarter of 1998. The Dow Jones Industrial Average fell from its 1998 high of 9338 on July 17th to its low for the year of 7539 on August 31st (a 19 percent decrease in less than two months). In September 1998, Cendant's stock price had impounded the aggregate effect of these factors and was trading in the range of $10 to $14 per share. The magnitude of the financial statement fraud at CUC and Cendant was confirmed when Cendant filed its restated financial statements with the SEC on September 29, 1998, which disclosed that, during the Class period, Cendant had overstated income from continuing operations before income from continuing operations before income taxes by approximately 24% and overstated earnings per share by 130%.

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COMPANY PROFILE

HFS Incorporated ("HFS") was a Delaware corporation that had its headquarters in Parsippany, New Jersey, and was principally a controller of franchise brand names in the hotel, real estate brokerage, and car rental businesses. Its securities were registered pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange ("NYSE"). CUC INTERNATIONAL INC.was a Delaware corporation that had its headquarters in Stamford, Connecticut, and was principally engaged in membership-based consumer services, such as auto, dining, shopping, and travel "clubs." CUC's securities also were registered pursuant to Section 12(b) and traded on the NYSE. Cendant Corporation, a Delaware corporation with its headquarters in New York City, was created through the December 17, 1997, merger of HFS and CUC. Cendant provides certain membership-based and Internet-related

consumer services and controls franchise brand names in the hotel, residential real estate brokerage, car rental, and tax preparation businesses. For corporate law purposes, Cendant is CUC. Pursuant to the Agreement and Plan of Merger between CUC and HFS, on December 17, 1997, HFS was merged with and into CUC, with CUC continuing as the surviving corporation and changing its name to Cendant Corporation. 8

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THE OFFICERS INVOLVE

A. Walter A. Forbes -the former Chairman of Cendant Corporation Forbes International orchestrated Inc. (CUC), an a earnings corporate management scheme predecessor of at CUC and,

Cendant,

subsequently, at Cendant itself. O over a twelve-year period Forbes directed a scheme that improperly inflated the company's quarterly and annual financial results, and that for the period 1995 to 1997, CUC's operating income was improperly inflated by an aggregate amount exceeding $500 million. When the fraud was disclosed in 1998, Cendant's common stock dropped dramatically, resulting in defrauded investors losing billions of dollars. Forbes was convicted in a related federal criminal prosecution of conspiracy to commit securities fraud and making false filings with the Commission. In 2007, Forbes was sentenced to 151 months in prison and ordered to pay criminal restitution of $3.275 billion.

B. ERIK E. SHELTON - The former Vice Chairman of Cendant Corporation Shelton helped orchestrate an earnings management scheme at CUC International Inc. Shelton was convicted in a related federal criminal prosecution of conspiracy, securities fraud, mail fraud, wire fraud, and making false filings 9

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with the Commission. In 2005, Shelton was sentenced to 120 months in prison and ordered to pay criminal restitution of $3.275 billion.

C. COSMO CORIGLIANO, CPA Corigliano, age 44, is and has been a certified public accountant licensed to practice in the State of Connecticut. He served as Controller of CUC International Inc. ("CUC") from 1983 to 1995 and as its Chief Financial Officer from 1995 until the December 1997 merger of CUC and HFS Incorporated ("HFS"), which formed Cendant Corporation ("Cendant"). After the merger, he was an officer of Cendant Membership Services, the post-merger name for the former CUC business units, until his resignation from Cendant in April 1998.

D. ANNE M. PEMBER Pember, the former CUC Controller, was the CUC officer most responsible for implementing directives received from Corigliano in furtherance of the fraud. Pember was responsible for implementing directives that inflated Cendant's annual income by more than $100 million, primarily through improper use of the company's reserves. Pember, by her actions in furtherance of the fraud, violated, or aided and abetted violations of, the antifraud, periodic reporting, corporate record-keeping, internal controls, and lying to auditors provisions of the federal securities laws. The Securities and Exchange Commission seeks an injunction enjoining Pember from future violations of those provisions, disgorgement of her ill-gotten gains (plus prejudgment interest thereon), payment of a civil money

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penalty, and an order permanently barring her from acting as an officer or director of a public company.

E. PAUL HIZNAY, CPA Paul Hiznay, a former Accounting Manager at CUC's largest division, aided and abetted violations of the periodic reporting provisions of the federal securities laws, in connection with actions that he took at the direction of his superiors at CUC. The SEC alleges that Hiznay made unsupported journal entries that Pember had directed. Simultaneous with the institution of the administrative proceeding, and without admitting or denying the findings contained therein, Hiznay consented to the issuance of the Commission Order, which orders him to cease and desist from future violations of the provisions.

F. MARY SCATTLER POLVERARI, CPA Mary Sattler Polverari, C.P.A., age 29, was hired as Supervisor of Financial Reporting at CUC International Inc. ("CUC") in December 1995 and worked in the company's financial reporting operations at corporate headquarters in Stamford, Connecticut. In the Fall of 1997, Polverari was promoted to Manager of Financial Reporting. Polverari continued to hold that title after CUC became Cendant Corporation ("Cendant") in December 1997. Polverari is licensed as a certified public accountant in New York and resides in Brewster, New York. The SEC found that Mary Sattler Polverari, a former CUC Supervisor of Financial Reporting, violated the corporate record-keeping provisions of the federal securities laws, and aided and abetted violations of the antifraud, periodic 11

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reporting, and corporate record-keeping provisions, in connection with actions that she took in furtherance of the fraud. The Commission alleges that Polverari, at the direction of Sabatino and Kearney, regularly and knowingly made unsupported alterations to CUC's quarterly financial results. Simultaneous with the institution of the administrative proceeding, and without admitting or denying the findings contained therein, Polverari consented to the issuance of the Commission Order, which orders Polverari to cease and desist from future violations of the provisions and bars her from practicing before the Commission as an accountant, with the right to reapply after three years.

G. STEVEN SPEAKS, CPA Steven Speaks, C.P.A., age 37, was an employee of Ideon Group, Inc. at the time that it was acquired by CUC International Inc. ("CUC") in August 1996. In early 1997, Speaks moved to Trumbull, Connecticut, to work in the accounting operations at CUC's largest division, the Comp-U-Card division, and, in June 1997, Speaks became controller of Comp-U-Card. In December 1997, CUC became Cendant Corporation ("Cendant"). Speaks is licensed as a certified public accountant in North Dakota and resides in Trumbull, Connecticut. Speaks violated, or aided and abetted violations, of the antifraud, periodic reporting, and corporate record-keeping provisions of the federal securities laws and seeking an order requiring Speaks to pay a civil money penalty. Without admitting or denying the Commission's allegations, Speaks has consented to the entry of a Final Judgment that would order Speaks to pay a civil money penalty of $25,000 12

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H. CASPER SABATINO The SEC alleges Sabatino, a former CUC Vice President of Accounting and Financial Reporting, implemented directives from Corigliano in furtherance of the fraud. Among other things, the Commission's complaint alleges that Sabatino was the CUC officer most responsible for directing lower-level CUC financial reporting managers to make Corigliano's alterations to the company's quarterly financial results. The complaint alleges that Sabatino, by his actions in furtherance of the fraud, violated, or aided and abetted violations of, the antifraud, periodic reporting, corporate record-keeping, internal controls, and lying to auditors provisions of the federal securities laws. Sabatino has consented to entry of a Final Judgment that would enjoin him from future violations of those provisions and permanently bar him from acting as an officer or director of a public company.

I. KEVIN T. KEARNEY The SEC alleges that Kearney, a former CUC Director of Financial Reporting, also instructed lower-level CUC financial reporting managers to carry out directives received from Corigliano in furtherance of the fraud. Among other things, the Commission alleges that Kearney was regularly present when Corigliano would calculate unsupported alterations to CUC's quarterly results and that, while he was part of the CUC financial reporting operations, Kearney supervised the lower-level managers who actually entered Corigliano's quarterly alterations. The complaint alleges that Kearney also profited from his own wrongdoing, selling CUC and Cendant stock at prices inflated by the fraud he had 13

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knowingly assisted. The Commission's complaint alleges that Kearney, by his actions in furtherance of the fraud, violated, or aided and abetted violations of, the antifraud, periodic reporting, corporate record-keeping, and lying to auditors provisions of the federal securities laws. Kearney has consented to entry of a Final Judgment that would enjoin him from future violations of those provisions, order him to pay disgorgement of $32,443 in ill-gotten gains (plus prejudgment interest of $8,234), and order him to pay a civil money penalty of $35,000.

J. KENNETH WILCHFORT AND MARC RABINOWITZ - They are partners at Ernst & Young LLP. Kenneth Wilchfort, CPA, age 50, is a partner at E&Y. Until approximately 1999, Wilchfort worked in the Assurance and Advisory Business Services ("AABS") practice of E&Y's Stamford, Connecticut office. Wilchfort served as the CUC audit engagement partner from 1990 through the third quarter of 1996. Thereafter, as mandated by rotation requirements set by the SEC Practice Section of the American Institute of Certified Public Accountants, Wilchfort ceased serving as audit engagement partner. He continued to serve CUC and Cendant as "Senior Advisory Partner." Marc Rabinowitz, CPA, age 46, is a partner at E&Y. Until approximately 1998, Rabinowitz worked in the AABS practice of E&Y's Stamford, Connecticut office. Rabinowitz was the audit engagement partner for CUC and the former CUC portion of Cendant from the third quarter of 1996 until April 1998. Wilchfort and Rabinowitz failed to detect the fraud taken by CUC

and Cendant Corp. in inflating their operating income. Partners relies only to the 14

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false management representation without inspecting their general ledger and other evidences and issued audit reports containing unqualified audit opinion and conducted quarterly reviews of the companys financial statements.

DISCUSSION

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CENDANT CORPORATION involves a massive fraudulent financial reporting scheme that caused dramatic investor losses. For more than twelve years, until its exposure in 1998, certain members of CUC's senior and middle management devised and operated a systemic, systematic scheme to inflate operating income at CUC. The scheme was driven by senior management's determination that CUC would always meet the earnings expectations of Wall Street analysts and fueled by disregard for any obligation that the earnings reported needed to be "real." CUC senior management overseeing the scheme maintained an annual schedule listing revenue and operating income for each of the company's divisions for its current fiscal year and coming fiscal year and setting forth the socalled "opportunities" or means available for inflating the company's operating income during the coming year. At the beginning of each fiscal year, management decided which of these opportunities to use for that fiscal year and the amount needed from each such opportunity. Accordingly, the schedule served as management's "cheat sheet" for any given year. CUC management utilized four principal categories of opportunities to inflate the company's income and earnings. Two of those categories involved the company's sales of membership products. First, management manipulated recognition of the company's membership sales revenues. Second, management improperly utilized two liability accounts related to membership sales, consistently maintaining inadequate balances in the accounts and on occasion reversing the accounts directly into operating income. To hide the inadequate 16

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balances, management periodically kept certain membership sales transactions off-books. The remaining two categories of opportunities involved the company's merger and purchase reserves. In what was the most significant category quantitatively, CUC management intentionally overstated merger and purchase reserves and subsequently reversed those reserves directly into operating expenses and revenues. Finally, management improperly wrote off assets -including assets that were unimpaired -- and improperly charged the write-offs against the company's merger reserves. The improper write-offs inflated operating income in various ways. CUC management directed some of the writeoffs to improper reporting periods, thereby manipulating results by avoiding charges in the period in which the write-offs should have been taken. In some instances, write-offs should have been taken against operating income but instead were improperly charged against merger reserves. In other cases, the assets were not impaired, and by taking the write-offs management avoided continuing depreciation or amortization costs. Together, the four categories of opportunities added an aggregate of more than $500 million to the company's pre-tax operating income during the fiscal years ended January 31, 1996; January 31, 1997; and December 31, 1997. Of that amount, more than half -approximately $260 million -- was added to the fiscal year ended December 31, 1997. CUC senior management supervised the scheme over the course of each fiscal year. Beginning in at least 1988, management regularly made certain 17

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aggregate changes to CUC's reported quarterly financial results. Accordingly, at the end of each of the company's first three fiscal quarters, senior managers took the company's actual results for the quarter and compared them with the quarterly expectations of analysts. The senior managers then directed mid-level financial reporting managers at CUC corporate headquarters to add whatever amounts were needed in order to bring CUC's quarterly income up to analysts' expectations. Thus, for each of the first three quarters of a CUC fiscal year, the managers artificially inflated revenues and decreased operating expenses. In conjunction with these income statement changes, the managers also cosmetically altered certain CUC balance sheet items. The fraudulent and artificial income statement and balance sheet alterations were simply inserted quarterly into a spreadsheet kept at CUC's financial reporting operations at Stamford, Connecticut. The quarterly changes were made solely as top-side adjustments in the spreadsheet -- that is, no journal entries were made, the company's general ledger was not altered, and the changes were not carried down to the books of the company's divisions. The spreadsheet was then used to generate consolidated financial statements for the company, and those consolidated financial statements were used for the company's press releases and quarterly reports. Accordingly, the company's quarterly reports filed with the Commission and released to investors did not accurately reflect the company's books and records. Moreover, quarter by quarter, the discrepancy between the company's quarterly reports and its books and records grew wider and wider. For example, the quarterly top-side alterations 18

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aggregated $31 million for the company's fiscal year ended January 31, 1996; an additional $87 million for its fiscal year ended January 31, 1997; and another $176 million for its fiscal year ended December 31, 1997. At the end of each fiscal year, the CUC managers implementing the scheme utilized the previously targeted opportunities to inflate the company's annual results as recorded on its books and records, so that the books and records would be consistent with the financial results already released and so that CUC's reported annual income would, in fact, meet the expectations of Wall Street analysts. As the scheme progressed over the course of several years, larger and larger opportunities were required. Eventually, only massive mergerrelated opportunities could sustain the scheme, and the need for such opportunities ultimately led CUC to seek a merger with HFS. In furtherance of their scheme, CUC managers falsified the company's books and records and failed to implement a system of internal accounting controls. In general, the managers simply created whatever entries were needed to accomplish their goals, regardless of whether the entries were in any way grounded in the fiscal or business realities of CUC. Moreover, to conceal the scheme, at year-end they repeatedly and regularly used unsupported postclosing journal entries carrying effective dates spread retroactively over prior months. At times, an unsupported entry would be broken into smaller component entries to make the adjustments less noticeable. Other entries were intentionally created in odd amounts to hide the fact that the entries were completely fictitious. When merger reserves were initially established, amounts were routinely and 19

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intentionally overstated. At times, reversals of merger reserves were designated as revenues. As noted, the quarterly consolidated financial statements were largely fictional. Membership sales cancellations and rejects were intentionally kept off-books for extended periods of time. At times, intercompany transactions were used to hide the offsets to specific entries. The scheme was designed to inflate CUC's income and earnings, and it did just that: as a result of the scheme, CUC filed periodic reports and other filings that overstated income, earnings, and certain of its assets. In sum, those reports and filings misrepresented the company's true financial condition and results of operations.

THE SETTLEMENT

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The Settlement with Cendant By December 1999, announce on behalf of the lead plaintiffs the landmark $2.85 billion settlement with Cendant that far surpassed the recoveries in any other securities law class ac ion case in history. Until the settlements reached in the WorldCom case in 2005, this stood as the largest recovery in a securities class action case, by far, and clearly set the standard in the field. In addition to the cash payment by Cendant, which was backed by a letter of credit that the company secured to protect the class, the Cendant settlement included two other very important features:

First, the settlement provided that in the event Cendant or the former HFS officers and directors were successful in obtaining a net recovery in their continuing litigation against E&Y, the Class would receive one-half of any such net recovery. As it turned out, that litigation lasted another seven years until the end of 2007 when Cendant and E&Y settled their claims against each other in exchange for a payment by E&Y to Cendant of nearly $300 million. Based on the provision in the Cendant settlement agreement and certain further litigation and a court order, in December 2008, the class received another $132 million. This brought the total recovered from the Cendant settlement to $2.982 billion. Second, Cendant was required to institute significant corporate governance changes that were far-reaching and unprecedented in securities class action litigation. Indeed, these changes included many of the corporate governance 21

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structural changes that would later be included within the Sarbanes-Oxley Act of 2002. They included the following: The boards audit, nominating and compensation committees would be comprised entirely of independent directors (according to stringent definitions, endorsed by the institutional investment community, of what constituted an independent director);

The majority of the board would be independent within two years following final approval of the settlement;

Cendant would take the steps necessary to provide that, subject to amendment of the certificate of incorporation de-classifying the board of directors by vote of the required super-majority of shareholders, all directors would be elected annually; and

No employee stock option could be "re-priced" following its grant without an affirmative vote of shareholders, except when such re-pricings were necessary to take into account corporate transactions such as stock dividends, stock splits, recapitalization, a merger or distributions.

The Settlement with Ernst & Young

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Ten days after reaching agreement on the Cendant settlement, with analiyzed negotiation of an equally impressive settlement with Ernst & Young, the accounting firm that audited CUCs financial statements. On December 17, 1999, announced that E&Y had also agreed to settle the claims of the class for $335 million. This recovery was and remains today as the largest amount ever paid by an accounting firm in securities class action case. The recovery from E&Y was significant because it held an outside auditing firm responsible in cases of corporate accounting fraud. The claims against E&Ywere based on E&Ys clean audit and review opinions for three sets of annual financial statements, and seven quarterly financial statements, between 1995 and 1997, but it had failed to review quarterly reporting packages by CUC subsidiaries; it did not require adequate documentation for the companys mergers reserves and topside adjustments; and failed to review the companys general ledgers.

THE BREAKUP

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On October 23, 2005, Cendant Corporation announced its decision to split into four separate companies, citing a necessity to diversify in appealing to stockholders and in an attempt to increase the value of the post-split up company. These four categories include "Real Estate,Travel

Distribution, Hospitality and Vehicle Rental Companies. Cendant originally decided to spin off its Travel Distribution division as a separate company called Travelport, but on June 30, 2006, Cendant announced the sale of Travelport to an affiliate of the privately held Blackstone Group for $4.3 Billion. This sale closed on August 23, 2006. During the fall of 2005 Progeny Marketing Innovations and Trilegiant were sold to private equity group Apollo Management. They changed their name in January 2006 to Affinion Group. On July 31 of 2006, both the Cendant Real Estate division as well as the Cendant Hospitality division were spun off and became separate companies under the names Realogy and Wyndham Worldwide, respectively. Realogy was subsequently bought by Apollo. The Cendant Car Rental Group, which owns Avis, Budget Rent A Car and Budget Truck Rental rental companies, became the sole remaining company under the Cendant name. The company changed its name to Avis Budget Group and the Cendant name has been completely dissolved.

CONCLUSION
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As to meet what Wall Street Analysts expect, Cendant Corporation suffers from millions of losses. CUC or Cendant Corporation forced to involve in a massive fraudulent financial reporting schemed that caused dramatic investors losses. The disclosure of Cendants accounting irregularities in April of 1998 caused the collapse of the stock by 46.5 percent in a single day. This decline represented a decrease in Cendant's market capitalization (price per share times the number of shares outstanding) of approximately $14 billion. The investors have lost more than $100 billion because of financial fraud and the resulting earnings restatements since 1995. Abusive earnings management was the culture firm implemented by Cendant Corporation causes this company now not existing.

RECOMMENDATION

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Financial statement fraud or fraudulent earnings management has become increasing issue in the world of business. The responsibility for detecting financial statement fraud is widely attributed to a company's external auditors. However, the auditing profession has been very circumspect in defining its role in fraud detection. Like what happen in Ernst & Young LLP, the responsible for auditing the financial statement of Cendant Corporation. They failed to review the general ledgers of the company thats why Cendant continues their scheme. External auditors shall take this consideration in auditing on financial statement of any company: locations. Requests for written confirmations from client employees regarding Recounts of inventory and unannounced visits to locations. Interviews of financial and non-financial client personnel in different

matters about which they have made representations to the auditors. Tests of accounts not normally performed annually. Tests of accounts traditionally or frequently deemed "low risk."

BIBLIOGRAPHY

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http://goliath.ecnext.com/coms2/gi_0199-2610886/The-accounting-professionand-financial.html http://en.wikipedia.org/wiki/Cendant http://www.barrack.com/Case-Study-Cendant.html http://sec.gov/search/search.htm http://classactionworld.com/Cendant+Corporation+Litigation/filed/94.html http://caselaw.findlaw.com/us-3rd-circuit/1040566.html http://www.referenceforbusiness.com/history2/94/Cendant-Corporation.html

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APPENDIX

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WALTER A. FORBES 29

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FORMER CHAIRMAN OF Cendant Corporation

HENRY SILVERMAN CEO of Cendant Corporation

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