Procedures in Collecting Forensic Evidence
The following are some irregularities found in the Apollo Shoes Case that shows there are possible frauds exist: 1.
Apollo’s minutes of October 18, 2007 shows that Mr. Unum, the VP of finance at Apollo Shoes refused the new auditing firm’s request to contact the old auditors. This may lead us to think that something might have happened during the previous audits. 2.
Apollo’s minutes of June 30, 2007 shows that Apollo approved an advance of $1,000,000 to Mr. Lancaster (CEO of Apollo Shoes) as a personal loan to cover personal legal expenses. Mr. Unum later reclassified the loan as other receivable. This information gives us a “red flag” for possible misclassification. Further investigation is needed to determine if possible fraud exists. 3.
Account receivable shows that the bad debt expense for the year ended December 31, 2006 was $1,622,000, which equals to the write-offs for the year. We need to pay more attentions to the write-offs to determine if the write-offs are legitimate. 4.
Apollo’s 10-K shows a related-party transaction. In 2006 the company purchased its operating facility and equipment from a company controlled by two previous directors and shareholders of Apollo Shoes. What procedures will be used to collect accounting evidence? The procedures of collecting accounting evidence should start with developing an investigative plan. The planning includes financial planning, personnel planning and technology planning. Financial planning helps to allocate the investigative resources and to make sure that investigation work get done within the budget. Personnel planning predict the staffing needs and to assemble an investigative team designed to proceed efficiently with the investigation. Technology planning is to identify the technical equipments needed during the investigation. After establishing a solid plan, the investigator can start the investigation. An investigation includes three steps: intelligence...
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