Apollo Shoes, Inc.
Relevant Matters Based on Minutes
(December 31, 2011)
Information Relevant to 2010 Audit
1. Remarks by Apollo Shoes Inc. CEO Larry Lancaster in regards to the 10% projected increase in sales for the 2011fiscal year. (“Well they better increase by that much or heads will roll.”) GA-3.1 2. Majority vote by members of the board to internalize product production GA-3.1 3. $90,000 stipend awarded to outside Board Members GA-3.1 4. Refinancing of short-term credit GA-3.1
5. $ 50,000 in damages due to April snowstorm GA-3.2
6. Discontinuation of Research and Development; replaced by personal gym to be used by corporate executives. GA-3.2 7. $8,810.13 Account Receivable write-off; CEO “heads would roll” statement limiting the number of receivables deemed uncollectable. GA-3.2 8. $1,000,000 board-approved loan to CEO’s personal secretary GA-3.2 9. $1,200,000 computer system purchase; $44,053,000 credit withdrawal. GA-3.2 10. $810,000 retroactive cash dividend GA-3.3
11. $12,000,000 class action lawsuit GA-3.3
Audit Action Recommendations
1. Assess whether or not Apollo Shoes, Inc used proper accounting methods and procedures to record revenue; Search for signs of accelerated recognition of revenues. 2. Question management about the decision to produce their product in-house. Obtain external evidence supporting Apollo’s acquisition of $1,300,000 equipment. (Vendor invoice, etc.) 3. Question management’s decision to award outside Board Members $90,000. Compare Board of Directors stipend to stipends awarded to directors of similar companies
4. Verification of increase in current liabilities stemming from the note payable due January 12, 2012 5. Recruit an independent damage appraisal specialist to assess the Shoetown damage caused by the April snowstorm. Compare independent damage appraisal with Apollo’s estimation and check for material difference. 6. Request blueprint of planned executive gym from external vendor. Check to see if Apollo Shoes, Inc. has issued disclosure notes notifying its investors of the plan to replace their R&D facilities with a gym for the private use of executives only. 7. Perform extensive tests on accounts receivable. Utilize auditing experience to construct mathematical computations to determine if Apollo Shoes, Inc. is grossly understating their allowance for doubtful accounts. 8. Notify Apollo (and SEC if necessary) of the illegal, related party transaction stemming from the outrageous loan payment. 9. Inquire about the huge difference between the authorized cap of $1,200,000 for the purchase of the new computer systems, and the VP of Finance request of $44,053,000 for the purchase of the new computer systems. 10. Check for proper documentation and subsequent notes related to retroactive declaration of cash dividends. 11. Gather legal documentation associated with the January 2, 2012 class action suit filed against Apollo and utilize first hand auditing knowledge and experience to properly judge if Apollo reasonably stated contingent liability amount associated with the pending litigation. Make sure that Apollo Shoes, Inc. releases subsequent notes to investors informing them about the contingent liability
Meeting Held January 5, 2011
Larry Lancaster, incoming chairman of the board, presided over the first meeting of the year, beginning at 3 p.m. The meeting was conducted in the boardroom of Apollo’s new global headquarters. All members were present:
* Outside director ** Outside director and member of the audit committee....
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