8Ed.sol2.2 - CASE 2.2 GOLDEN BEAR GOLF INC Synopsis...

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CASE 2.2 GOLDEN BEAR GOLF, INC. Synopsis According to one sports announcer, Jack Nicklaus became “a legend in his spare time.” Nicklaus still ranks as the best golfer of all time in the minds of most pasture pool aficionados— granted, he may lose that title soon if Tiger Woods continues his onslaught on golfing records. Despite his prowess on the golf course, Nicklaus has had an up and down career in the business world. In 1996, Nicklaus spun off a division of his privately owned company to create Golden Bear Golf, Inc., a public company whose primary line of business was the construction of golf courses. Almost immediately, Golden Bear began creating headaches for Nicklaus. The new company was very successful in obtaining contracts to build golf courses. However, because the construction costs for these projects were underestimated, Golden Bear soon found itself facing huge operating losses. Rather than admit their mistakes, the executives who obtained the construction contracts intentionally inflated the revenues and gross profits for those projects by misapplying the percentage-of-completion accounting method. This case focuses principally on the audits of Golden Bear that were performed by Arthur Andersen & Co. An SEC investigation of the Golden Bear debacle identified numerous “audit failures” allegedly made by the company’s auditors. In particular, the Andersen auditors naively relied on feeble explanations provided to them by client personnel for a series of suspicious transactions and circumstances that they uncovered.
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100 Case 2.2 Golden Bear Golf, Inc. Golden Bear Golf, Inc.—Key Facts 1. Jack Nicklaus has had a long and incredibly successful career as a professional golfer, which was capped off by him being named the Player of the Century. 2. Like many professional athletes, Nicklaus became involved in a wide range of business interests related to his sport. 3. In the mid-1980s, Nicklaus’s private company, Golden Bear International (GBI), was on the verge of bankruptcy when he stepped in and named himself CEO; within a few years, the company had returned to a profitable condition. 4. In 1996, Nicklaus decided to “spin off” a part of GBI to create a publicly owned company, Golden Bear Golf, Inc., whose primary line of business would be the construction of golf courses. 5. Paragon International, the Golden Bear subsidiary responsible for the company’s golf course construction business, quickly signed more than one dozen contracts to build golf courses. 6. Paragon incurred large losses on many of the golf course construction projects because the subsidiary’s management team underestimated the cost of completing those projects. 7.
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8Ed.sol2.2 - CASE 2.2 GOLDEN BEAR GOLF INC Synopsis...

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