Golden Bear Inc.

Case Title: Golden Bear Golf, Inc.

Questions:

1. List the management assertions relevant to Paragon’s projects. Describe audit procedures that Andersen could have employed for each assertion.

Related to Paragon’s projects? Existence or occurrence (review contracts – inspection AS 15 Paragraph 15), Completeness (Speak with project managements and other parties onsite about projects stage of completion – inquiry AS Paragraph 17), Valuation or allocation (Review contracts and followed up on undocumented amounts), Presentation and disclosure because revenue were not reported at correct amounts on the income statement and nonexistent projects were included in the revenue amount. (Visiting the construction site.)

2. What did the SEC mean by “audit failure”? Was Sullivan solely responsible?

In review of AS 5 Paragraph 3, I believe what the SEC meant by audit failures in this case is that KPMG failed to express an appropriate opinion on the effectiveness of the internal controls of GBI’s financial reporting. Additionally, the SEC believes the audit failed because KPMG failed plan and perform the audit to obtain appropriate evidence in order to confirm management assertions and provide reasonable assurance about whether material weaknesses exist.

According to AS 10, the engagement partner does have primary responsibility for the engagement and its performance. The partner is responsible for proper supervision of the audit team members and for compliance with PCAOB. However, the engagement partner should seek assistance from the appropriate engagement team members and these individuals must also fulfill their duties in accordance with the standards. Therefore, even though Sullivan was primarily responsible for the deficiencies that the SEC noted, he was not solely responsible because his team members are also required to follow the appropriate standards and audit procedures as well.

3. Audit engagement team responsibilities for high-risk vs. normal...