Here is an extract from a news article today on Cendant. The accounting issue seems to relate to timing. If 1997 financials are restated to postpone recognition of some earnings, then 1997 earnings would be less and 1998 earnings would be more. However, accounting procedures would also be revised for 1998, making the effect on 1998 essentially a wash. In a like manner, if all of CUC's financials were restated beginning some years back, then even 1997 earnings might be relatively unchanged. Thus, it might turn out that there is a negligible effect on both 1997 and 1998 earnings. Whatever the case, this whole issue might simply be a tempest in a teapot.
"Investors who have spoken with the company say the heart of the problem appears to be how the CUC business booked its revenue from some club-membership sales and how it handled the expenses associated with marketing to those members. Cendant executives and financial filings say that the cost of bringing in a new club member is about equal to the first year's membership fee. In its filings, Cendant says it spreads out costs for things like postage, printing, and publications over a period of one to three years. That's fine under generally accepted accounting standards, so long as the company also spreads out when it claims the revenue, said Jack Ciesielski, accounting specialist. But, the investors say, CUC appears to have been booking too much revenue up front, and deferring the expenses to future periods, thereby easing the sting to earnings." |
