Internet Problem 14 1 Revenue Recogniti Essay - 1000 Words

AUDITING II HOMEWORK â€Å"Internet Problem 14-1: Revenue Recognition Fraud† Chapter 14 Wahyunda Risa Putri 1210534008 Shabrina Alin Firstiana 1210534010 Atikah Galuh Wilandra1210534013 Lecturer : Suhernita, SE, ForeAcc, Akt. International Class Faculty of Economics Andalas University 2014 INTERNET PROBLEM 14-1: REVENUE RECOGNITION FRAUD 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’s website (www.sec.gov) and search the link to â€Å"Litigation†¦show more content†¦Instead, accounting standards require that Bally recognize initiation fee revenue over the entire membership life. This means that for members who maintained their memberships beyond the financing period, or initial period of membership, Bally was required to defer initiation fee revenue and recognize it over the estimated membership life, not over the term of the initial period of membership. However, Bally prematurely recognized its members’ initiation fee revenue over a period that was not on ly shorter than the estimated membership life, but in most instances even shorter than the initial period of membership. Personal Training Services: In addition to selling health club memberships, Bally also sold personal training services (i.e., exercise sessions with personal trainers). Some customers prepaid for sessions with personal trainers. Accounting standards require that revenue from prepaid personal training services be recognized only when earned, which is when the personal training services were actually provided. Bally, however, recognized revenue related to personal training services before those services were actually provided.