Golden Bear Case Essay

1302 Words Mar 21st, 2013 6 Pages
Golden Bear Golf, Inc.

1)Which “management assertions” were relevant to Paragon’s construction projects? Describe an audit procedure that Arthur Anderson could have employed to corroborate that assertion for each.

Professional auditing standards identify 5 “management assertions” that commonly underlie a set of financial statements. These 5 assertions are: occurrence, completeness, valuation/allocation, rights/obligations, and presentation/disclosure. With respect to the audit of Paragon’s construction project, some of these key assertions were overlooked by auditor Arthur Anderson. The main assertions that Anderson should have focused on for this audit include occurrence, valuation, and disclosure. Occurrence is a relevant
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Anderson should have also contacted clients regarding the various change in fees that Paragon had apparently incurred.
Finally, disclosure was a very relevant assertion for the Paragon audit. Paragon failed to disclose much information regarding their switch to the “earned-value” method. Paragon continued billing its customers on a cost-to-cost basis while reporting financial results in the earned-value method. Arthur Anderson should have required Paragon to remain consistent and charge its customers based on the earned-value method.
2) Define what you believe the SEC meant by “Sullivan’s Audit Failures”. Do you believe Sullivan, alone, was responsible for the deficiencies that the SEC noted in the 1997 audit of Golden Bear?

According to the SEC, Michael Sullivan was fully aware that the decision to use the earned value method would result in accelerating revenue by material amounts. It is very clear that the SEC believed that Sullivan acted in a very reckless manner throughout the audit and was very negligent to important audit procedures that are typically performed for the audits of construction companies. I think that by “Sullivan’s Audit Failures”, the SEC meant the Sullivan failed to perform these key audit procedures that are crucial to the audit of construction projects. Although I do agree that Sullivan acted recklessly during the audit, I do not believe that he, alone, was responsible for the deficiencies noted

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