Response to the following problem:
The Securities and Exchange Commission (SEC) found that Bally Total Fitness Holding Corporation, a nationwide commercial operator of fitness centers, fraudulently accounted for three types of revenues it received from members. The SEC also charged the audit firm and six partners for their roles in the accounting violations. Visit the SEC Web site and search the link to "Litigation Releases" to locate Litigation Release 20470 issued on February 28, 2008, against Bally Total Fitness Holding Corporation to learn more about this revenue fraud.
Required:
a. Read the release and the accompanying complaint in this matter and briefly summarize the three types of alleged revenue frauds.
b. Return to the opening page on the SEC Web site and search the link for "Press Releases" to locate the December 17, 2009, announcement of the SEC charges against the audit firm and the six partners.
c. Read the press release and briefly summarize the SEC description of the nature of audit risk associated with the Bally's audit engagement.
d. Read the complaint against the audit engagement partner, who served as the 2001 and 2002 engagement partner. What factors caused the audit firm to recognize Bally as a high risk audit client for 1996-2003?