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Apollo Shoes Case Study

Decent Essays

Anderson, Olds and Watershed
Certified Public Accountants
Letter to the Audit Committee

To: Apollo Shoes Audit Committee
From:
Date:
Subject: The Audit of….

The following memo aims to outline the results of the audit of Apollo Shoes, give recommendations to improve the company’s operations, and provide justification for our qualified opinion.

For their accounts receivable confirmation as of December 31, 2017, Mall-Warts stated that they had entered into involuntary bankruptcy on November 3, 2017. After having adjusted their balance due for shoes that were wrongly shipped to them in the amount of $5,765,081.85, Mall-Wart had a balance due of $14,784,144.03. Due to the unlikeliness that this amount is to be collected, we have proposed that this amount be written off in full to bad debt expense. However, Larry Lancaster has decided not to record this entry in hopes that Apollo Shoes will still be able to pay the amount in full. When ignoring the adjustment for the wrongful sales, in which Larry believes Mall-Wart will pay, Mall-Wart accounts for 40% of the company receivables. The fact that Mall-Wart has declared bankruptcy is too material to ignore, and we are unable to give an unqualified opinion. We disagree with Larry’s analysis of the situation, and therefore have given the 2016 financial statements a qualified opinion.

There are a few other matters, unrelated to the qualified opinion, that we believe should be made aware to the audit committee. They are as

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