The leading type of accounting

By and far, the leading type of accounting restatement in 1990s involved scandals, concerning “revenue recognition. ” Accounting includes a spate of flexibility, particularly in projecting future revenues to be earned as a result of disposition to incur a present cost. However , managers who are very greedy and desperate who seemingly turned to accounting scam to window dress their company accounts with fictitious revenues mainly to boost their share prices in the share markets .

One may astonish why professionals like auditors who are said to be watch dogs and not blood-hounds also collide with the greedy company executives to project unrealistic accounting figures to deceive gullible investors. Further, the chief financial officers and comptrollers are constantly under coercion and inexorable pressure to report fictitious accounting figures. Some studies suggest that these insiders are also regrettably often involved in these accounting scams. It is really wonder how outside or independent directors are not aware of these devious designs.

There is a general allegation that American corporations are not conforming to Generally Accepted Accounting principles. In view of the various accounting scandals in corporate America , SEC has initiated various measures to plug the loopholes in the accounting practices by introducing measures like filing quarterly , half-yearly and annual accounting reports , appointment of independent directors in the audit committee of the board and introduction of corporate governance

One of the studies conducted in the year 1999 suggests that more than 50% of accounting –related claims comprised charges that corporations mismanaged revenue recognition. About 40% of the GAAP –concerned claims, corporations over-reported their assets and involved in misdeeds in purchase accounting, liabilities and accounting estimates also existed among the charges. Attempts to recuperate fractions of ex-chief executive officers pay in case if there is any scandal at a later date rarely succeeds.

For this lacuna, corporate-governance connoisseurs partly fault directors themselves for the muddle, since it is they who offered a rich reward upon the CEO’s whom they later ousted. Cendant fraud is the greatest accounting scam in the corporate world of U. S that had occurred in 1998. Due to merger of HFC with CUC International, it was found that CUC over reported its revenue by $501 million between 1995 and 1997 employing varied methods like understating liabilities and recording fictitious revenues.

Cendant’s restated 1997 profits reduced by more than $161 million. Cendant’s erstwhile CFO, VP, and Chief Financial Controller admitted their involvement in many other charges. Cendant finally settled $3. 2 billion in a shareholder suit filed against company. Ernst & Young, auditors of the Cendant deferred $334 million to settle shareholder lawsuit. This research essay will highlight the real background of financial scam in Cendant Corporation that shattered the confidence reposed by investors in share market of U. S. A.