2.2- Golden Bear Golf, Inc.
1. The assertions relevant to Paragon include the occurrence and accuracy of transactions, the valuation and allocation of account balances, and also the occurrence, classification and understandability and also accuracy and valuation of presentation and disclosure. In order to verify the occurrence and accuracy of transactions, Arthur Anderson should have sent out accounts receivable confirmations for the unbilled transactions included in their revenues and also to those with whom they had contracts that were inflated in their accounts to reconcile differences between the books and the contracts. This would have not only shown that many of the revenues they had booked were not only inaccurate, but that many of them had been fabricated completely or recognized without commitment. This could have also shown that Paragon was billing their clients on a cost-to-cost basis that would have shown that the valuation and allocation of account balances were misstated. Visits to job sites would have also helped to identify the progress toward completion which could have shown the auditors that they valuation and allocation was misstated for their construction projects.
2. I believe that the SEC’s use of the phrase “audit failures” refers to Sullivan’s repeated failure to exhibit professional skepticism and perform the necessary audit procedures to verify that the balances and transactions in the revenue accounts were accurate. Sullivan repeatedly relied upon oral evidence from the client itself when it came to disputes and failed to ever fully reconcile account balances with Paragon’s clients. Essentially, via a lack of thoroughness in the audit process, Sullivan failed to recognize the blatant fraud at Paragon. I do not believe that Sullivan, alone, was responsible. There is no mention of further tests having been conducted to verify account