ChapterÂ 1.Â The Phases of Decline and Early Warning Signs
In December of 2009, six partners in the accounting firm Ernst & Young paid $8.5 million to settle long-standing charges that they failed to see problems at Bally Total Fitness. Bally had overstated its stockholders' equity by $1.8 billion and had understated net losses in its business by approximately $100 million in each of several years. The company had recognized revenue it never actually received from initiation fees and prepaid dues. The partners were charged with failure to spot the warning signs at Bally as it slid from profitability to bankruptcy, but the firm itself paid an even higher price.
The longer such problems go unsolved, the harder it is to turn around a company. To determine ...
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