The audit report and internal control evaluation apollo shoes

APOLLO SHOES, INC.

An Audit Case to Accompany
AUDITING AND ASSURANCE SERVICES

PLEASE READ THROUGH THE BELOW BEFORE BEGINNING THE CASE

Apollo Shoes, Inc. is an audit case designed to introduce you to the entire audit process, from planning the engagement to drafting the final report. You are asked to assume the role of a veteran of two-to-three "busy" seasons, "in-charging" for the first time.

While Apollo Shoes' growth has been phenomenal (there has been a dramatic growth in unaudited net income over the past year), there are some concerns: the client doesn't want your firm (Anderson, Olds, and Watershed (AOW)) to talk with the predecessor auditor, a labor strike is looming, and one of Apollo Shoes' largest customers is suffering some financial difficulties.

Because of busy season, there is little help, other than from an untrained intern. While the intern can do "grunt work," such as vouching and gathering information for you, he appears incapable of preparing workpapers, making adjusting entries, or even getting good coffee and doughnuts. Assistance does come in the form of an objective, competent internal audit staff. Communication between client personnel and other firm members takes the form of e-mail messages from the engagement partner (Arnold Anderson), the engagement manager (Darlene Wardlaw), the intern (Bradley Crumpler), and the director of Apollo's internal audit department (Karina Ramirez). Required assignments and memos are in bold print. Page indexing suggestions are given, but feel free to adjust page numbering as you see fit.

While we tried to make the case as realistic as possible, limitations remain. Since you are unable to follow up directly with client personnel, you may need to rely on some evidence with which you may be uncomfortable. In an actual audit, you would be able to inquire, observe, and otherwise follow-up on any questions that you have until you feel that you can rely on the evidence. To make sure that the case can be completed in a reasonable amount of time, we cut some corners with respect to audit sampling. Understand that audit sampling plays a large role in actual audit practice.

The information in the case is sequential in nature. Begin with the first tab: Planning, and work through the documents/links in this tab in the order they are listed. Then move on to the next tab: Internal Control, and so on. Be sure to pay close attention to information disclosed early in the audit (for example, in the Board of Director's minutes) as it may play a role in subsequent audit work. Similarly, the bank cutoff statement in the cash workpapers and invoices used for valuing inventory may be useful later in the search for unrecorded liabilities. The bank confirmation contains information about long-term liabilities.

Lastly, while it is difficult for us to believe that not everyone enjoys auditing as much as we do, we have tried to make the case both interesting and fun. You can think of the project as a puzzle, in which you have to fill in all the pieces. Alternatively, you could look at the project as a murder mystery that needs a solution. In either case, have fun!