Accounting Ethics: Techniques Used by Cendant to Manipulate Financial Results

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Accounting Ethics Mergers and acquisitions come with a lot of challenges to the parties as was the case with HFS Incorporated (HFS) and Comp-U-Card (CUC). HFS was a franchise with business interest in the hotel industry, real estate brokerage, and car rental initiatives that traded as Avis, Ramada Inn, and Century 21 (Katz, 2000). CUC engaged in membership based consumer services like auto, dining, shopping, and travel clubs. The HFS and CUC both had their shares traded on the NYSE. Cendant Corporation came about after HFC had merged with CUC. To ensure that certain regulations were complied with, CUC's senior management appeared to have hatched a scheme to ensure that CUC met financial results that the Wall Street analysts anticipated (Katz, 2000). To actualize this, the CUC senior management manipulated recognition of the company's membership sales revenue in order to accelerate the recording of revenue. They improperly utilized two liability accounts related to membership sales that resulted from commission payments. The management consistently managed inadequate balances in the liability accounts and occasionally reversed the accounts directly into operating income. Certain membership sales transactions were not recorded in the books. This aided them in overstating merger and purchase reserves (Katz, 2000). This reversed merger and purchase reserves into operating expenses and revenues. The CUC senior management also improperly wrote off assets and improperly charged

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