Cendant Corporation has been the subject of an intensive fraud investigation. A look at the company's web site reveals the following statements contained in a report given to the Scathe Company sold travel and health club memberships. Some of the most significant irregularities now confirmed include the following:
• Irregular charges against merger reserves-Operating results at the former Cendant business units were artificially boosted by recording fictitious revenues through inappropriately reversing restructuring charges and liabilities to revenues. Many other irregularities were also generated by inappropriate use of these reserves.
• False coding of services sold to customers-Significant revenues from members purchasing long-term benefits were intentionally misclassified in accounting records as revenue from shorter-term products.
The falsely recorded revenues generated higher levels of immediately recognized revenues and profits for Cendant.
• Delayed recognition of canceled memberships and "charge-backs" (a chargeback
is a rejection by a credit-card-issuing bank of a charge to a member's credit card account)-In addition to overstating revenues, these delayed charges caused Cendant's cash and working capital accounts to be overstated.
• Quarterly recording of fictitious revenues-Large numbers of accounts receivable entries made in the first three quarters of 1997 were fabricated; they had no associated clients or customers and no associated sale of services. This practice also occurred in 1996 and 1995.
Accounting Errors
Cendant, working with Deloitte & Touche, has also discovered accounting errors in Cendant's financial records that are not classified as accounting irregularities. Approximately six to nine cents per share of the total estimated restatement of 1997 earnings will result from the elimination of these errors. These accounting errors include inappropriate useful lives for certain intangible assets, delayed recognition of insurance claims, and use of accounting policies that do not conform to generally accepted accounting principles.

Required
a. How could the auditor have used risk analysis to determine the likelihood that a material misstatement might have existed in Cendant's financial statements?
b. Identify audit procedures (and audit evidence gathered) that would have detected the misstatement of revenues and intangible assets.
c. How would the auditor's assessment of management integrity and management motivation have affected the nature, timing, and extent of audit procedures identified?