Apollo Memo

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Date: Mon, 21 JAN 2008 11:04:37 +0000
From: "Darlene Wardlaw" <DW@aow.cpa>
Subject: FW: Revenue Cycle Problems

Bradley sent me a copy of his test of controls work that he did on sales transactions. (Please tell him to send his work to you, rather than me.) Based on what Bradley found, there looks to be some serious problems in Sales and A/R. You need to write a memo identifying and explaining the significance of the qualitative features indicated by these deviations. Some things you may want to think about:

* If the control performance were uniform for the year, the deviations would be evenly distributed by month. * Apollo Shoes faced financial problems in the fourth quarter of the year. * Sales transactions with missing bills of lading suggest improperly recorded sales. * December is the month when deviations overstating sales can have the most effect on the financial statements. * The company reports financial results each calendar quarter ending in March, June, September, and December. * Lack of credit approval for sales generally suggests the company might experience collection problems. * Errors in billing customers generally might be expected to be a mixture of overcharges and undercharges to the customers. * For customer overcharges, what was the average delay between the invoice date and the date a credit memo was entered giving the customer credit to correct the mistake? * Can you find any qualitative characteristics not signaled by these indicators?

Because of the problems noted, I don’t think we can rely on Apollo’s controls over revenue and accounts receivable. We will need to confirm most, if not all, of the accounts receivable balances. I suggest that you mail positive confirmations to those customers with accounts greater than $1,000,000 and negative confirmations to those with balances less than $1,000,000.

Also, I suggest that you ask Apollo’s customers to verify total sales...
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