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Apollo Shoes Audit Report

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We have audited the accompanying balance sheets of Apollo Shoes, Inc. as of December 31, 2008, and the related statements of income, comprehensive income, shareholders’ equity, and cash flows for the year ended, and related notes to the financial statements. We have also audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Apollo Shoes, Inc. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO criteria).

Managements Responsibilities for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements, in accordance with the generally accepted accounting principles in the United States of America. Management is also responsible for maintaining effective internal control over financial reporting relevant to the preparation and fair presentation of financial statements that are free form material misstatements.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements, an opinion on management’s assessment, and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audits. We did not audit previous years’ financial statements of Apollo Shoes: prior years’ audits were completed by other auditors whose report has been given to us, and our opinion, insofar as it relates to the amounts included for Apollo Shoes, is based on the report of the other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.

Evidence and Testing

Our audit of the financial statements including examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. The evidence used to complete the audit was provided both by the previous years audited financial statements as well as from the schedules and documents provided by the company. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We received data direct from independent sources such as customer’s verification of account balances and bank statements provided by Twenty First National Bank. The totals were compared with recorded cash receipts for date, customers, and amount.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that

1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company 2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company 3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate (Louwers & Reynolds, 2007). We believe that the audit evidence obtained is sufficient and appropriate to provide a reasonable basis for our opinions.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Apollo Shoes, Inc. as of December 31, 2008 and the results of its operations and cash in conformity with U.S. generally accepted accounting principles. The financial statements and related foot notes to said statements may be used for investors and management to make informed decisions on the health of the company. Also in our opinion, management’s assessment that Apollo Shoes, Inc. maintained effective internal control over financial reporting as of December 31, 2008, is fairly stated, in all material respects based on the COSO criteria.


After closely reviewing the Apollo Shoes casebook, it became clear that there was some tension regarding the loss Mall-Warts as a client due to bankruptcy. Darlene Wardlaw and Arnold Anderson believe that the loss of December Sales and the related allowance for doubtful accounts would have a material impact on the financial statements. Based on the information provided it appears that the information about Mall-Wart is disclosed in the notes to the financial statements. As the outcome of bankruptcy and the disputed sales are unknown, a note disclosure satisfies GAAP requirements. This is why I chose an unqualified opinion. If Apollo Shoes did not disclose these details in the notes, I would have added a paragraph such as the one below.

Basis for Qualified Opinion

During the year ending December 31, 2008, Apollo Shoes largest customer filed for bankruptcy. There is an ongoing dispute regarding a December sale that has a material impact on the reported sales and the allowance for doubtful accounts.

In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects.


Elder, A. A., Beasley, M., & Elder, R. J. (2014). Auditing and assurance services (15th ed.). Upper Saddle River, NJ: Pearson. Louwers, T. J., & Reynolds, J. K. (2007). Apollo Shoes, Inc. New York, NY: McGraw.

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