ACC550-AE Cendant Detailed Outline PDF

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1 RUNNING HEAD: DETAILED OUTLINE

Cendant Corporation Detailed Outline

Ebony Chew ACC550-AE Ethics and Professional Responsibilities for CPAs, Professor Tim Price November 22, 2021

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Case Summary Introduction The company was formed by two merger companies HFS Incorporated and Comp-UCard International and after being merged the company used methods to combine the company’s financial statements allowed by GAAP (Mintz, & Morris, 2019). The company fell into some issues in early 1997 by making unsupported post-closing entries such as the company paid commissions to certain institutions on sales of CUC membership products sold through those institutions. Accordingly, at the time that it recorded revenue from those sales, CUC created a liability to cover the payable obligation of its commissions (Mintz, & Morris, 2019). CUC senior management used false schedules and other devices to support their understating of the payable liability of the commissions and to avoid the impact that would have resulted if the liability had been properly calculated (Mintz, & Morris, 2019). Further analysis of Cendant Corporation fraud and financials will be discussed in this paper.

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Income Smoothing ethical or non-ethical 1.

Manipulation of earnings (Chong, 2006).

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Ethical theories 1.

Virtue, justice, rule utilitarianism (Mintz, & Morris, 2019).

2. Management 1. Pressure on Cendant (Irene, Wilopo, & Indah, 2018). 1. Fraud Triangle 1. Incentive/pressure (Mintz, & Morris, 2019). 2. Opportunity (Mintz, & Morris, 2019).

3 RUNNING HEAD: DETAILED OUTLINE 3. Rationalization (Mintz, & Morris, 2019). 3. Faith Integration 1. Proverbs 11:14 (ESV, 2021). 1. Financials (ESV, 2021). 2. Companies covering up information (ESV, 2021). 3. Money comes and goes (ESV, 2021).

4. Audit by EY and AICPA 1.

False statements by EY (Mintz, & Morris, 2019). 1.

AICPA 1.

Ethical obligations (AICPA, 2021).

2.

Rules (AICPA, 2021).

3.

Integrity (AICPA, 2021).

5. Trust in Cendant 1.

Fiduciary duties (Mintz, & Morris, 2019). 1.

Corporate governance 1. Governance system (Wright, & Siegel, 2021). 2.

Misled auditors (Wright, & Siegel, 2021).

6. Auditors discovering fraud 1.

Pressure on managers (Halbouni, 2015). 1.

Misstatements 1.

More testing (Asare, Van Buuren, & Majoor, 2019).

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4 RUNNING HEAD: DETAILED OUTLINE 2.

Identify fraud risks (Anto, Florensia, & Supyati, 2020).

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Engagement (Carmichael, 2018).

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Conclusion In conclusion, income smoothing is not an ethical practice as the motivation for Cendant to become involved in the practices showed the public is harmed when an audit fails to uncover fraud. Based on the management and the use of the fraud triangle instead of covering up their financials and making it seem as if the company is doing better both the company and management should have had a conversation and been truthful to simply provide the real information and facts as to what the company is currently at. The fraud triangle analysis of the company further details of those inside the company involved and what really happened. Ending with a faith integration that reflects on the overall view of the case. The firm failed to meet its ethical obligations under the AICPA code and violated the rules in which they had to suffer the consequences of doing so. The corporate governance system had no structure and became nonexistent in Cendant Corporation therefore, when SOX passed it required all members of the audit committee to be independent. Auditors should be expected to discover fraud especially if there are misstatements provided it is their duty to properly place them in the correct period and they should be able to identify a variety of fraud risks if the company approves for additional resources.

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References Page AICPCA. (2021, July). Retrieved October 12, 2021, from https://www.aicpa.org/interestareas/personalfinancialplanning/resources/practicecenter/professio nalresponsibilities.html Anto L.O., Hamid W., Florensia A., & Supyati O. (2020). Auditor’s Ability to Detect Fraud: Independence, Audit Experience, Professional Skepticism, and Work Load. Russian Journal of Agricultural and Socio-Economic Sciences, 107(11), 192–205. https://doiorg.libproxy.calbaptist.edu/10.18551/rjoas.2020-11.23 Asare, S. K., van Buuren, J. P., & Majoor, B. (2019). The Joint Role of Auditors’ and Auditees’ Incentives and Disincentives in the Resolution of Detected Misstatements. Auditing: A Journal of Practice & Theory, 38(1), 29–50. https://doi-org.libproxy.calbaptist.edu/10.2308/ajpt52153 Carmichael, D. R. (2018, March 01). Audit vs. Fraud Examination. Retrieved October 12, 2021, from https://www.cpajournal.com/2018/03/05/audit-vs-fraud-examination/ Chong, H Gin. (2006). Is income smoothing ethical?. Journal of Corporate Accounting & Finance. 18. 41 - 44. 10.1002/jcaf.20261. English Standard Version. (2021). Retrieved October 13, 2021, from https://www.biblegateway.com/passage/?search=Proverbs 11:14&version=NIV Halbouni, S.S. (2015), The Role of Auditors in Preventing, Detecting, and Reporting Fraud: The Case of the United Arab Emirates (UAE). International Journal of Auditing, 19: 117130. https://doi.org/10.1111/ijau.12040

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Hemmer, T. (2020). Income Smoothing as Rational Equilibrium Behavior? A Second Look. Accounting Review, 95(5), 211–226. https://doi-org.libproxy.calbaptist.edu/10.2308/TAR2017-0132 Irene Nia Melati, R Wilopo, & Indah Hapsari. (2018). Analysis of the effect of fraud triangle dimensions, selfefficacy, and religiosity on academic fraud in accounting students. Indonesian Accounting Review, 8(2), 187–202. https://doiorg.libproxy.calbaptist.edu/10.14414/tiar.v8i2.1536 Mintz, S. M. & Morris, R. E. (2019). Ethical obligations and decision making in accounting: Text and cases (5th ed.). New York, NY: McGraw-Hill Irwin. ISBN: 9781260480856 Wright, M., & Siegel, D. (2021). Alternative Investments, New Organizational Forms, and Corporate Governance. Academy of Management Perspectives, 35(1), 1–8. https://doiorg.libproxy.calbaptist.edu/10.5465/amp.2018.0182...