Bally Total Fitness Review * Accounting issues and effects: * Overstatement of revenue * $997.8 million - recognized initiation fee revenue over the initial period of membership * $35 million – recognized prepaid dues in the month the payment was received * $105.5 million – prematurely recognized revenue for multiple element arrangements by treating them as separate elements * Understatement of expenses * $114 million – capitalized and deferred membership acquisition costs including salaries, bank charges, NSF charges, and credit card charges * $4.3 million – improperly understated “Holiday Bonds” expense (and did not disclose the bonds on the financial statements) * $60.9 million – overstatement of goodwill * Auditor: Ernst & Young * Time period: 1997-2003 * Accounting principles not followed: * Overstatement of revenue * GAAP prohibits the recognition of revenue from initiation fees immediately, they should have been recognized over the entire membership life * GAAP requires that the prepaid dues be deferred and recognized as it is earned * GAAP requires that revenue from multiple elements be treated as a single element * Understatement of expenses * GAAP requires that costs related to the acquisition of the contract can be capitalized and amortized, all other costs should be expensed as incurred * GAAP requires that liabilities be reflected on the balance sheet and that interest incurred for those liabilities be recorded on the income statement * GAAP requires that goodwill be adjusted to reflect fair value and the difference between book and fair value be expensed * Professional standards not followed: * The auditors did not act in a way that served the public interest, honor their