The purpose of this group project is to produce a research paper relying on information from Litigation Releases, Press Releases and the annual reports available on the Securities and Exchange Commission’s website (www.sec.gov). You are also required to download stock price data from the Wharton Research Data Services (WRDS) to investigate the impact of disclosed fraud and bad news releases on corporate stock prices. You will be required to display visuals of the reactions of stock prices for an identified company over a certain timeframe and identify how certain information disclosures on specific days influenced the stock price of this company.
This assignment is graded on content, correct use of English language and grammar, and logical analysis. You are highly encouraged to use the UC at Zayed University before submitting your assignment.
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Bally Total Fitness.
The Securities and Exchange Commission found Bally Total Fitness Holding Corporation, a nationwide commercial operator of fitness centers, fraudulently accounted for three types of revenues it received from its members. The SEC also charged the audit firm and six partners for their roles in the accounting violations. Visit the SEC website (sec.gov) and search the link to “Litigation Releases” to locate Litigation Release 20470 issued on February 28, 2008, against Bally Total Fitness to learn more about this revenue fraud.
- Read the “Litigation Release” and the accompanying compliant in this matter and briefly summarize the types of alleged frauds. For each fraud, identify the management assertion(s)/or the audit objective(s) that was violated.
- Return to the opening page on the SEC website 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. Summarize the SEC charges against the audit partners.
- Read the press release and briefly summarize the SEC description for the nature of risks associated with the Bally’s audit engagement.
- Extract Bally Fitness Corp’s last annual report issued with the SEC (Go to sec.gov—Filings-Company Filing search -in the “Company and Person Lookup” field specify Bally Total Fitness Corp (not holding) —Filing type specify “10-k”. The first 10-k filing date will be 2007-06-29. Click the document tab then the annual report document. Scroll through the document until you find the Report of Independent Registered Public Accounting Firm. Did Bally Fitness maintain adequate internal controls. If not, briefly identify 4 total internal control weaknesses (a mix of deficiencies and material weaknesses) and then explain the difference between these two internal control weakness classes.
- To access data from the Wharton Database and be able to interpret them, please use the following credential to access the data. Please read and comply with user’s agreement. Data is for education use only. https://wrds-web.wharton.upenn.edu/wrds/index.cfm?
Please follow the next steps in order to download the daily stock prices for Bally Total Fitness over the period January 1997- December 2009:
Steps to get stock price data for Bally:
- After logging with class username and password, accept the agreement, and go to:
- Center for Research Securities Prices (CRSP)
- Click on: Stock/Security Files
- Click on Daily Stock file
- Enter the time from Jan 1, 2000-Dec 31, 2009
- Make sure the Ticker is selected
- Look at -Please enter Company codes separated by a space and type in the space: BFIT BFT
- Scroll down to select price (if you like, you can select anything else that interests you too, e.g. name of company, exchange, de-listing..etc).
- Scroll some more and select type of file, I usually use .csv but .xlxs is fine as well. Don’t use text file.
- Click Query Submit. It is going to open up in a new window. Just wait for it until it finishes running. Last, right click on the file to save it into your computer. You should have the data file on your computer now.
Using charts in excel, make a line chart of the stock prices downloaded from WRDS. Observe the ups and downs in stock prices. Do you think stock prices responds to bad news in the market about Bally, i.e. around same days fraud or action was initiated against Bally and EY partners? Make sure to explain your findings and also please explain lack of stock prices for the entire period.
Final Report Format.
The final report should include the following sections:
- Your group number and name of group members
- A summary of Bally Fitness Litigation Release
- A summary of Bally Fitness Press Release Summary
- A summary of Auditor’s assessment of internal controls over financial reporting
- An analysis of Bally Fitness’s daily stock prices from January 1997-December 2009
Additional information and requirements.
- This Report must not exceed seven double spaced pages in 12 point font, including the stock price chart. You must be precise and to the point.
- I will create a “Group Project” folder for you to upload this final report/research paper to by the due date. Make sure to comply with all format instructions identified above (I will deduct points on anything that does not meet the project requirements).
- Every member of the group is required to contribute to the production of this report and this will be factored into your individual grade.
- No questions are allowed. Read the document carefully, and as a group answer all the questions to the best of your knowledge. A 3-4 member group should be able to figure out all aspects of the project.