5. Your answer should demonstrate your critical analysis skill with substantive discussions of the drivers, consequences, and preventions of the earning management practices in the case.; In April 1998, Cendant announced misstated financial statements at its CUC International unit, the announcement resulted in a loss of $14 billion in market capitalization within one day of trading. Cendant had been a darling of Wall Street until its announcement. It had produced a tremendous record of growth in revenues and earnings. By April of 1998, the company was an active acquirer of firms performing various services (Ramada, Coldwell Banker, Avis) and had recently made news by outbidding behemoth AIG for American Bankers Insurance Group, a deal that fell through following the accounting fraud announcement. Cendant had acquired the CUC unit through a merger of equals. The firm had two headquarters, one in Stamford, Ct. for the former CUC and one in New Jersey. For the merger due diligence, Cendant had relied almost exclusively on the audited financial statements of CUC. Thus, they failed to uncover the $ 500 millions of fraudulent sales and receivables recorded between 1995 and 1997, and the million-plus of expenses charged by its CEO to the company. The improprieties at the Cendant unit grew to the point where they could not be concealed in its annual audit, prompting the announcement. Although Cendant has survived, they sold 11 businesses and their stocks price and price earnings multiple has not recovered. Cendant eventually settled the largest shareholder lawsuit, $2.8 billion, in history.