E&Y agrees massive payout to settle Cendant audit dispute
Ernst & Young in the US is to pay $335m to shareholders of the Cendant Corporation in one of the largest ever payouts by an accountancy firm over audit failures.
The firm has agreed a $335m settlement with shareholders of Cendant Corporation who have been running a class action lawsuit against the firm.
Cendant settled with the shareholders early last month agreeing to pay them $2.83bn.
E&Y was auditor of Cendant’s predecessor company CUC International. According to the Californian Public Employees’ Retirement System, or CalPERS, one of Cendant’s major shareholders, E&Y provided a clean audit report on three annual reports, seven quarterly reports and as many as twenty registration documents.
CalPERS said that each of these had subsequently been found to include or incorporate grossly overstated financial statements. For example, in public statements during 1998 Cendant said that CUC’s operating income was overstated by around $500m.
Investigators from Arthur Andersen uncovered the irregularities when CUC in 1997 merged with HFS to form Cendant.
In May 1998 Deloitte & Touche, HFS’s accountant, took over as auditor for the entire Cendant organisation.
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