Team B ACC556 AU316 Memo 1 
Memorandum
To:
From:
Date: February 2, 2015
Re: AU 316 This morning a meeting took place to discuss potentially fraudulent activity occurring within Apollo Shoes, Inc. After much discussion, the most probable fraud scheme at Apollo involves accounts receivable due to the accounts being overstated. The overstatement is significant enough to warrant additional audit testing.
The potential for fraud in the accounts receivables lies in the lack of review procedures for the allowance of bad debt. There is no clear guidance in how much should be set aside for this purpose.
The atmosphere of Apollo Shoes, including Mr. Lancaster’s unwillingness to write off doubtful accounts, is a tense one at best. The company is not turning the profit and moving merchandise as expected. A shipment was sent to Mall-Warts, one of the biggest customers of Apollo Shoes, after it filed bankruptcy. A purchase order was not located for this shipment, nor was payment collected. Despite Mall-Wart stating that it cannot afford to return the shipment let alone pay the invoice, Apollo Shoes will not claim the amount due as doubtful. The reasoning of eventually the bankruptcy will be settled, and the bill can be paid is unrealistic at best.
Apollo is trying to maintain the lines of credit with its business partners, and they want to prove to investors that the company is doing well. Apollo does not wish to lose its current investors to other opportunities. The appearance of overstating its accounts is very strongly suggested upon review of the documents. The biggest red flag was that the allowance for bad debt expense dropped from 7.7 percent to 2.5 percent after the accounts receivable increased. In order to prove this theory, it is necessary to collect data on the allowance of bad debt from previous years, including the percentage of debt that was uncollectable. A review of the significant accounting estimates from last year is also required. This will assess whether or not
To:
From:
Date: February 2, 2015
Re: AU 316 This morning a meeting took place to discuss potentially fraudulent activity occurring within Apollo Shoes, Inc. After much discussion, the most probable fraud scheme at Apollo involves accounts receivable due to the accounts being overstated. The overstatement is significant enough to warrant additional audit testing.
The potential for fraud in the accounts receivables lies in the lack of review procedures for the allowance of bad debt. There is no clear guidance in how much should be set aside for this purpose.
The atmosphere of Apollo Shoes, including Mr. Lancaster’s unwillingness to write off doubtful accounts, is a tense one at best. The company is not turning the profit and moving merchandise as expected. A shipment was sent to Mall-Warts, one of the biggest customers of Apollo Shoes, after it filed bankruptcy. A purchase order was not located for this shipment, nor was payment collected. Despite Mall-Wart stating that it cannot afford to return the shipment let alone pay the invoice, Apollo Shoes will not claim the amount due as doubtful. The reasoning of eventually the bankruptcy will be settled, and the bill can be paid is unrealistic at best.
Apollo is trying to maintain the lines of credit with its business partners, and they want to prove to investors that the company is doing well. Apollo does not wish to lose its current investors to other opportunities. The appearance of overstating its accounts is very strongly suggested upon review of the documents. The biggest red flag was that the allowance for bad debt expense dropped from 7.7 percent to 2.5 percent after the accounts receivable increased. In order to prove this theory, it is necessary to collect data on the allowance of bad debt from previous years, including the percentage of debt that was uncollectable. A review of the significant accounting estimates from last year is also required. This will assess whether or not