Paragon Construction Audit Case

1. The assertions relevant to Paragon’s construction projects are listed as follows:
a. Valuation: The valuation assertion ensures the transaction amount recorded is correct. Paragon changed from cost-to-cost method used to recognize revenue to “earned value” percentage-of-completion accounting method. Changing methods misstated revenues, and Paragon’s management overstated the contractual revenue amounts for most of the construction projects. Michael Sullivan should have sent out confirmations for Accounts Receivable and to the employees Paragon had contracts with.
b. Occurrence: The occurrence assertion ensures the transactions that have been recorded took place. Paragon recorded revenue for projects that were nonexistent, and recorded false construction costs, which overstated revenue. Sullivan should have tested revenue as well as visited the sites where the construction work took place. Visiting the sites would have given Sullivan the opportunity to speak with the appropriate employees about the projects.
c. Completeness: The completeness assertion ensures the transactions that took place are complete. Paragon misstated revenues.
I believe the SEC defined an audit failure as wrongly stating the financial statements of the company are accurate and correct, when the statements contain fictitious statements, material errors, and there isn’t a proper note disclosing the information. I don’t believe Sullivan, alone, was responsible for the deficiencies noted by the SEC in Andersen’s 1997 audit. I do believe Sullivan had the most responsibility, but the others were just as responsible as he was. Sullivan asked for explanations of the financial statements, and he was lied to. Sullivan should have asked for evidence as proof for the explanations, which would have caught the lies. He should have put forth more effort in visiting the construction project sites to gather insight and evidence on the completion of the projects rather than relying on oral