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 …show more content…

It also states that, in order to monitor the impact of the earned value method on Paragon’s operating results, Sullivan required the client’s accounting staff to provide detailed schedules showing Paragon’s project-by-project results under both methods. Of course this doesn’t excuse Sullivan for failing to examine significant uninvoiced construction costs; he clearly was concerned about this new method of revenue recognition. Sullivan also did not act alone; he had other audit team members who were also responsible for the audit. Additionally, collusion by Golden Bear’s management to disguise the fraud sure didn’t help Sullivan’s cause.
3) Sullivan identified the 1997 Golden Bear audit as a “high-risk” engagement. How do an audit engagement team’s responsibilities differ, if at all, on a high-risk engagement compared with a “normal” engagement? During the initial phase of planning of the 1997 Golden Bear audit, Sullivan designated it as a “high risk” engagement. However, the SEC noted that Sullivan had failed to mind any attention to these concerns while planning the actual audit procedures. Due to this “high risk” audit, Sullivan and his team should have been extra cautious during the audit and most definitely should have performed a more aggressive and thorough set of substantive audit procedures. A possible strategy that audit teams can consider on “high-risk”