International A Membership Based Consumer Service

1343 Words Dec 15th, 2015 6 Pages

On December 17th 1997 CUC International a membership-based consumer service company focused on giving people access to discounts on travel, shopping, etc. and HFC Incorporated a large hotel franchiser merged together and became Cendant. CUC International lead by Walter Forbes deliberately and fictitiously made the company more than $500 million fictional revenue, which in effect led to one of the biggest fraud cases of the 1990’s. This is a very interesting fraud case and one that forced the accounting and auditing standard setters to review some of their standards, which is something I’ll talk about more later on.
The fraud was very simple at its base; the idea was to allow the employees of CUC International and later Cendant to cook the books as much as it was possible in order to have the earnings reach the Wall Street analyst’s projections. Cendant moved their current expenses to later periods by capitalizing the costs; they also moved the future expanses into the present period and then released the reserves into income. By doing so they appeared to have more income then they had in really, and when it came to purchases they took restricted charges and in effect created unreal income also known as smooth income. By doing so they manipulated the financial statements and appeared to be doing very well as a whole. They also kept the rejections and cancellations off the books and by doing so they kept their renewal percentage at around 65-70%. This went on for…
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