The fantastic bear dissertation

Intro

This kind of paper covers the Golden Bear Golf Inc after Initial General public Offer 20 years ago, highlighting the accounting procedures and strategies were used in spotting the company’s earnings. This paper explains the fraud took place in recognizing the revenue and how it over-stated the financial statements and increased the stock selling price. It also explains the fraud theory applied to the revenue recognition and the auditor’s failure in discovering the fraud and reports that to the SEC. This conventional paper will provide methods that auditors should stick to in auditing public companies and the best practices they should comply with if the organization changed the revenue acknowledgement.

Background

Jack Nicklaus commenced playing golf since he was youthful, and this individual mastered the golf in his teen. Following he managed to graduate from high school graduation he was presented a scholarship or grant in Kentkucky State University in his home town of Columbus. At the age of 21 years old he became a member of the professional golf tour and was an instant achievement. Nicklaus earned a record of 18 major the game of golf championships and received the “Player in the Century merit in the golfing world.

He understood at early age that winning golf games is not enough for his ambition, he won’t be an athlete permanently, although he played right up until he was forty-eight,; he wanted to transfer his golf expertise into the business community. He made a decision to establish his own organization in teaching and designing golf programs and known as it the Golden Endure Inc. By mid-1970s, Jack port Nicklaus became high profile well-liked athlete which usually allowed him to promote deals and other business opportunities.

He hired executives to run the Golden Endure Inc day by day operation. Jack port Nicklaus had not been aware of the accounting details of his company until Richard Bellinger; an accountant los angeles employed by Glowing Bear, got into contact with him and explained to him that the firm was for the edge of bankruptcy. After having a brief research Jack noticed that he allowed his business to become component to dozens of not related business, without one was aware of the accounting circumstance even his own management. At this point this individual decided by making use of Richard Bellinger to run his own company and repair all the challenges the company confronted. He called himself the CEO, and placed Mr. Bellinger the COO. Within couple of years Nicklaus and his COO were able to change the companyaround and made lucrative again. In 1996, Nicklaus decided to broaden his organization operation by creating a additional company from your Gold Keep to design and build golf classes. He made the decision starting this provider through Preliminary Public Present.

The new firm became open public and called the Fantastic Bear Golfing Inc as well as stock exchanged on the NASDAQ exchange underneath the ticker symbol JACK, Nicklaus retained much more than 50% with the commons inventory, but allowed a subsidiary company Paragon International, a wholly owned or operated company by the Golden Keep Inc, to deal with the daily operation in the company and Nicklaus will certainly manage his private business. Nicklaus appointed John Boyd and Christopher Curbello because the two top rated executives of Paragon foreign, Boyd started to be the director and main operating officer, while Curbello assumed the title of Paragon’s vice president of operation.

Due to Nicklaus’s success and popularity, a whole lot of asks for came to Paragon Inc for Jack Nicklaus-designed golf programs; in few months the company acquired more than half dozens of of deals to design and make golf training in different spots all over the United States. In 1998, Steve Boyd, Curbello, and some of Paragon best management attempted to purchase Paragon from Glowing Bear Incorporation. but when they failed to buy it coming from Nicklaus that they resigned all their positions, and new management came upon. The new administration quickly discovered that Paragon functioning results had been misrepresented pertaining to the year of 1997 as well as the first one fourth of 98. The Scam Case

When ever Nicklaus designated Boyd and Curbello as the executives of Paragon Foreign to manage the Golden Bear Inc., this individual offered them incentive payment packages each, grated them a large number of Glowing Bear stock options, and provided them substantial bonuses if perhaps Paragon fulfilled certain operating benchmarks. However, one year after the public offer Boyd and Curbello have realized that all their forecasting in the gross income from the construction projects was unrealistic, and in turn of earning profits they were occuring losses on most of these tasks. In order to avoid the population embarrassment if the losses information about the construction jobs was released for the public, and prevent the potential clients from understanding that the Golden Bear Incorporation was not lucrative, they decided to overstate you can actually financial claims from the working results. The public embarrassment had not been the onlyfactor to overstate the economic statements, there are a few other important factors written for their decision of embellishing the reported operating effects.

The initial key factor was the incentive that offered to these people was conditioned with appointment the goals that Nicklaus has collection for them, second the fear of having a bad standing if the sector found out that they were not making any revenue for Jack port Nicklaus. That they worked pertaining to famous, popular, and successful athletes and if they lost his self-confidence, they would lose the industry’s confidence. These types of factors create a fear from failure and the same time a desire to be because successful as the man they will work for. Generally construction assignments take multiple year to get completed, and the best accounting method in recognizing revenue related to these kinds of projects is a “cost-to-cost percentage-of-completion method. In the beginning, Paragon Organization used the “cost-to-cost percentage-of-completion method that required managing to determine the percentage of a project’s total approximated construction costs incurred within a given accounting period.

Then this same percentage of the total revenue (and gross profit) to be gained on the task is ordered that period. In 1997, the company was incurring deficits based on the application of “cost-to-cost percentage of conclusion method in recognizing the revenue. Now the executives have instructed the control to switch from your original approach to a different technique referred to as the “earned value percentage-of-completion approach, this method was new, untested, and unrecognized by the Generally Accepted Accounting Standards. With this accounting method instead of depending upon the cost already incurred, that they relied upon management’s estimates for the project’s progress. Based on the management’s appraisal, in 97 and 1998 the monetary statements were overstated by simply $17. being unfaithful million.

The executives also instructed the accounting staff to finish transactions to improve the income because they will received new amendments to the original project’s contracts “change of order, the staff acquired never viewed any regress to something easier documentation to these requests. This change of method has not been enough for the professionals, so that they started realizing revenue for potential projects that Paragon’s sales office had identified while looking achievable opportunities, although the company did not have any kind of verbal contract or crafted contracts with these potential clients.

In this particular case you will find more than one scam theory relates to the professionals who committed the scams. The first one may be the Fraud Triangular, and the second one is the Conflict Theory. The Fraud Triangle

The fraud triangular describes 3 factors causing business fraudulence: motive, option, and rationalization. If the 3 factors are present in an organization, fraud probably will occur, although not all three facts are requirement in the same volume. In the Gold Bear Incorporation. case each one of these factors existed in the company. The Motive in this case was the incentive that was agreed to the Boyd and Curbello if they will reached all their yearly desired goals. In addition to their incentive, the prestigious lifestyle they had with famous athletes’ and how they should be as successful as they are. Rationalization in this case may be the financial pressure that they were facing from this industry and the pressure of failing. They will realized that in the event they are unsuccessful, they won’t be able to keep all their jobs, and so they won’t be capable of make ends meet. Their particular whole life was depending on the achievement in this task.

Opportunity been around in this condition because the insufficient internal control and no overview of the managements method of evaluation. In public corporations the board of administrators should contact form an audit committee that review policy, procedures, and accounting technique with managing and impartial auditors. In the Gold Bear Incorporation, this practice failed to offer efficient interior control to catch these kinds of misstatements just before it was submitted with the SEC. Another opportunity that the auditors, Arthur Anderson, didn’t survey any misstatements during their audit in 97 and have not really provided any advices against changing the accounting approach to unfamiliar and untested technique “earned value percentage-of-completion, especially the change was material inside the financial transactions.

The Discord Theory

The turmoil theory was presented simply by Karl Marx and in standard it promises society is a state of constant issue due to competition for limited resources. The theory holds that social buy is preserved by domination and electrical power, rather than general opinion and conformity. According to conflict theory, those with wealth and electricity try to keep hold of it by any means possible. In the Golden Keep Inc case, the Issue Theory is applicable toexecutives because their feeling of the importance of holding on all their powers and the wealth at all possible means. Boyd and Curbello had a exceptional situation which in the initial year of managing the Golden Keep, they currently committed scam. In different situations, the professionals usually misrepresent the financial to match previous years’ achievement, and wanting that the overall economy will improve this kind of misrepresentation will be corrected in different period.

In this case, the company was brand new available in the market, and had simply no previous years to compare to, and the management realized at the beginning that this kind of projects will not as rewarding as they believed it will be, and so they wanted to keep the bonuses and they wished to keep all their positions and their power, therefore intestinally they have committed this kind of fraud to keep all their electricity. I believe which the power isn’t just money in this case; it is also interconnection and the renowned life style the executive were hoping for and got accustomed to. Working with one of the most renowned athletes and businessman just like Nicklaus they could not afford to lose this kind of power or perhaps wealth, that they couldn’t risk failing in these project as a result of public consequences and the personal consequences. Additionally kind of electric power, they have applied Nicklaus’s recognition and conceal behind his image expecting that no one will problem a company held by a reputable member of the society. Essentially they thought they can get away with anything at all because of the electrical power Nicklaus and they held. The Discovery with the Fraud

Towards the end of 98, Boyd, Curbello, and some with their top employees tried to pick the Paragon Foreign from the Glowing Bear, although all their attempts failed as Jack Nicklaus was not willing to sell this provider to them. They have realized they can’t keep this accounting practices pertaining to long without being discovered, therefore Boyd and Curbello retired from their placement in Paragon International. Following their take-offs, a new administration team was appointed and quickly they have realized that the financial transactions from the construction projects were overstated simply by almost $17. 9million intended for 1997 as well as the first 1 / 4 of 98. Immediately The Golden Endure Inc requested collaboration via Arthur Anderson, which they have already been the auditors for Paragon International, PricewaterhouseCoopers, and the Gold Bear inside legal team to investigate the financial assertions of 97 and the firstquarter of 1998 and the operating accounting methods.

After the investigation The Golden Bearn Inc. had to restate the financial statements for 1997 and the first one fourth of 1998 to recognize loss of $20million. At this point The safety and Exchange Commission began its own investigation of the Golden Bear Inc, centering on the auditor’s who granted unqualified thoughts and opinions for 97. The auditor was Michael jordan Sullivan somebody at Arthur Anderson seeing that 1984. The SEC possess released the results in the investigation from the yellow metal Bear Inc and included a section entitled “Sullivan’s Taxation Failures. Inside the SEC unveiled results they may have stated that Sullivan was well aware that changing the “cost-to-cost percentage-of-completion method to the “earned value method increases the income by materials amount, knowingly that this method is new and untested.

There is also stated that there was $4million of un-invoiced construction costs had been ordered as a great adjusted entry at 12 months end 1997, Paragon’s managing have said these kinds of cost are the proximate earnings that would have already been recorded if perhaps they were making use of the “cost-to-cost method, and Sullivan did not check out this deal further, the $4million was fictitious. Sullivan knew that Paragon reserved costs that no invoices had been received and which are not shown in the provider’s accounts payable system and this recording of these un-invoiced costs would have considerably reduced the gap between results made by the two appraisal methods. Furthermore, the SEC stated that after Paragon executives switched for the earned worth method, that they had assured Sullivan that they could bill buyers on those bases, but in reality these were billing consumers effectively on the cost-to-cost basis, because they could not costs the customers to get the full quantity of earning that they were saving on the building projects seeing that those customers were generally conscious of the real levels of completing the project.

Sullivan and the lads didn’t evaluation the levels of unbilled income and don’t confirm with the customers around the amounts was billed to them. Sullivan and his team relied only in Paragon’s spoken explanation to verify the unbilled revenue plus the billed quantities. Finally, Paragon had another tactic to inflate the revenue which was to overstate the total revenues to be attained on person construction project, this total revenue getting used in the “earned-value percentage-of-completion computations exceeded the revenue figure documentedin the construction original agreement. The professionals explained to Sullivan and his team by speaking that these distinctions were verbal agreement between your client and Paragon upon adding a fresh addition to the initial project, or change of orders in this project, the Paragon professionals have show Sullivan and the lads that most of those projects managers work better by speaking and they offer contracts or perhaps change of order records later, and Sullivan was satisfied with this explanation. Inner Control

Inside the Golden Carry Inc circumstance, unfortunately the tone at the very top was started commit this kind of fraud and there was not any sufficient inside control in order to avoid it in time. The panel of administrators of The Golden Keep Inc never have reviewed the method of accounting used by Paragon Management staff, and mentioned if it is in compliance with Generally Recognized Accounting Requirements or not really. Also the board of directors have not met with the independent auditor to discuss their finding trying to improve their procedure and types of procedures. If the interior control in The Golden Bearn Inc. was insufficient, but the independent auditor Arthur Anderson failed to discover this scams in previously time. Sullivan and his team, really should have realized that this business is brand new company and in addition they went general public in mil novecentos e noventa e seis, this company will need to been risky company and so they should have performed more assessment and looking at more back up documentation to support any deals.

First, Sullivan and his team, failed to test the accounts receivable confirmation, they must have approached the job managers or maybe the owners, someone aware of the stages from the project, outdoors Paragon to confirm the receivables, and to as well confirm the current stage with the project of course, if it matches the transactions about book. Beyond the receivable’s affirmation, the change of purchase transactions, Sullivan shouldn’t have got accepted the verbal description from the professionals that these were verbal modify of order from the job manager. Second, Sullivan and his team should have certainly not agreed to the change of method from “cost-to-cost percentage-of-completion to “earned value technique, because this technique is not identified by GAAP and it haven’t been analyzed before. Regardless if they made a decision to test this new method and issued two schedules together with the two methods, once they be aware that the portions are overstated by a material amounts, then they should have stopped using this method instantly.

Last, however, not least, Sullivan and his team should certainly havereviewed the first construction projects contracts and match the revenue recognized with the volume agreed on, because Paragon documented revenue from potential clients’ project certainly not from real clients. The writer understand that this case occurred before the Sarbanes-Oxley Act in 2002 and there was not any strict method and types of procedures on the inner control and the consequences with the managements placing your signature to off on the financial statements, but we believe if the board of directors have got better assess in reviewing the financial and they developed an taxation committee to work alongside the auditors, that Fraud could have been averted. In addition to the table of overseer, we believe which the auditor should have better role in learning about the scams and notifying Nicklaus when he was the key owner from the yellow metal Bear Incorporation Stock. The Final Action

That kicks off in august 1998, a class-action suit was recorded against The Glowing Bear Incorporation, Paragon business owners, and the rule owner Jack Nicklaus by one of the stockholder. In the same month NASDAQ delisted you’re able to send common inventory, which was trading for less than $1 per reveal after it was trading to get $20 every share. In December 99, Golden Bear reached to agreement around the lawsuit and settled intended for $3. your five million dollar to be paid the stockholders, and to purchase their very own shares with the price of $0. 75. After this pay out the Golden Bear folded into Nicklaus private corporations. In The fall of 2002, Eileen Sullivan was suspended coming from practicing prior to SEC for one year.

Arthur Anderson was put out of business as a result of Enron Scam Case That kicks off in august 2002, Paragon’s controller received two years suspension system from rehearsing front from the SEC. The SEC endorsed three previous Golden Carry executive by ordering them to “cease and desist by any future violations in the federal securities laws. Finally, in March 2003, a federal grand court indicted Ruben Boyd and Christopher Curbello on fees of securities fraud and conspiracy to commit securities fraud. Curbello was imprisoned in Sand Antonio, Texas, and Boyd was apprehended in Bogota, Columbia, a number of days later by Key Service and FBI providers who immediately flew him to the United states of america. In 06 2003, Curbello pleaded accountable to conspiracy to commit securities scam and was sentenced to three and half years. A few months afterwards, Boyd pleaded guilty to similar charges and was given a five year prison sentence. Lessons Learned

The Golden Carry Inc supervision

The Golden Carry Inc’s supplementary company Paragon was in charge of managing the public company and it’s really financial, yet there was nonetheless responsibilities show up on The Fantastic Bear major owner Jack port Nicklaus. He should have examined the economical statements with Paragon’s management’s team. He should have talked to the auditors separately by management to address any worries the auditor might have. He also should possess visited a few of the construction sites some time with managements and sometime devoid of managements. Furthermore to specific reviews, Nicklaus should have equiped audit panel to be specialized in review the financial statements and function directly with the auditors and decide what is the best procedure and techniques Paragon Incorporation should have used in choosing accounting strategies. The Accounting Staff

I understand that the tone at the top was set by executives, and everything their asks for to the accounting staff was based on their particular decision, but as an accountant they must have requested more documents to back-up the orders they have been expected to complete, they should have questioned the “Change of Order mental requests they have received coming from managements by the client. I also realize that no one loves whistleblowers, however, if the accounting staff questions a few of the practices, they should have advised the panel of owners, or the auditors as anonyms. They in least needs to have documented their very own concerns and provided to managements. The Auditors

The auditors got big responsibility toward people in auditing the Paragon’s Inc economic statements. The company was fresh, so they had to aspect a high risk testing process and types of procedures. They should have tested more account receivables confirmation, and talked directly to the client. That they could have as well read all of the contracts and compare the initial amount to the thing that was on the literature. They should possess talked about the client’s that had zero contract and requested a document to prove that you will discover contracts should to be on the books. Their work should not stop at that, they should possess visited the construction sites and discuss the given tasks withproject managers, architects, and other appropriate workers.

The main reason lurking behind these visits and interviews should be to assess the stage of completion and approximated cost to complete this kind of project, and compare notes between management’s representations and the actual periods of the job. One of the most components that the auditor should have sees was the modify of earnings recognition. When the managements made a decision to change the method of revenue reputation, the auditor should have encouraged against this change, as the modern method was new, untested, and don’t follow Generally Accepted Accounting Standards. They must have asked a timetable with both methods, test the, and determine whether this method is going to accurately identify the income, and if the change was material enough that they should not use this solution to begin with.

Recommendations

Kurz, Michael C. (2013). Modern Auditing: Real Issues and Cases. Freedom, KY: Cengage Learning. Lilly, J. Robert, Cullen, Francis T., & Ball, Richard A. (2007). Criminological Theory: Context and Consequences. Thousands of Oaks, LOS ANGELES: Sage Syndication, Inc. Rezaee, Zabihollah (2010). Financial Affirmation Fraud: Avoidance and Detection. Hoboken, NJ: John Wiley & sons, Inc. Crumbley, D. Larry, Heitger, Lester, & Cruz, Stevenson (2011). Forensic and Investigative Accounting. Chicago, ELLE: CCH Group. Carrns, A. (1998, Come july 1st 28). Golden Bear Golf to restate ’97 failures at $24. 7 mil. Wall Street Journal ” Eastern Model. p. A10. Golf boom puts Paragon’s sales on a sharp way up trajectory. (1997). ENR: Executive News-Record, 239(13), 16. (1998, May 6). Florida Business begins an indoor review of unit. Wall Street Journal ” Eastern Release. p. B4.

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