This paper discusses the Golden Bear Golf Inc after Initial Public Offer in 1991, highlighting the accounting practices and methods were used in recognizing the company’s revenue. This paper explains the fraud occurred in recognizing the revenue and how it overstated the financial statements and increased the stock price. It also explains the fraud theory applied to the revenue recognition and the auditor’s failure in discovering the fraud and reports it to the SEC. This paper will provide methods that auditors should follow in auditing public companies and the best practices they should follow if the company changed the revenue recognition. Background
Jack Nicklaus began playing golf since he was young, and he mastered the golf in his teen. After he graduated from high school he was offered a scholarship in Ohio State University in his hometown of Columbus. At the age of 21 he joined the professional golf tour and was an instant success. Nicklaus won a record of 18 major golf championships and received the “Player of the Century” award in the golfing world. He realized at early age that winning golf games is not enough for his ambition, he won’t be an athlete forever, although he played until he was 48, ; he wanted to transfer his golf skills into the business world. He decided to establish his own business in teaching and designing golf courses and called it the Golden Bear Inc. By the mid-1970s, Jack Nicklaus became high profile popular athlete which allowed him to endorse deals and other business opportunities. He hired executives to run the Golden Bear Inc day to day operation. Jack Nicklaus was not aware of the accounting details of his company until Richard Bellinger; an accountant employed by Golden Bear, approached him and explained to him that the company was on the edge of bankruptcy. After a brief investigation Jack realized that he allowed his company to become part of dozens of unrelated business, and no one was aware of the accounting situation even his own executives. At this point he decided with the help of Richard Bellinger to run his own company and fix all the challenges the company faced. He named himself the CEO, and placed Mr. Bellinger the COO. Within couple of years Nicklaus and his COO were able to turn the company around and made profitable again. In 1996, Nicklaus decided to expand his business operation by creating a subsidiary company from the Gold Bear to design and build golf courses. He decided starting this company through Initial Public Offer. The new company became public and named the Golden Bear Golf Inc and its stock traded on the NASDAQ exchange under the ticker symbol JACK, Nicklaus retained more than 50% of the commons stock, but allowed a subsidiary company Paragon International, a wholly owned company by the Golden Bear Inc, to manage the daily operation of the company and Nicklaus will manage his private business. Nicklaus appointed John Boyd and Christopher Curbello as the two top executives of Paragon international, Boyd became the president and principal operating officer, while Curbello assumed the title of Paragon’s vice president of operation. Because of Nicklaus’s success and popularity, a lot of requests came to Paragon Inc for Jack Nicklaus-designed golf courses; in few months the company had more than half dozen of contracts to design and build golf courses in different locations all over the United States. In 1998, John Boyd, Curbello, and some of Paragon top management attempted to purchase Paragon from Golden Bear Inc. but when they failed to purchase it from Nicklaus they resigned their positions, and new management came on. The new management quickly discovered that Paragon operating results had been misrepresented for the year of 1997 and the first quarter of 1998. The Fraud Case
When Nicklaus appointed Boyd and Curbello to be the executives of Paragon International to manage the Golden Bear Inc., he offered...
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