APOLLO SHOES, INC. An Audit Case to Accompany AUDITING AND ASSURANCE SERVICES SUGGESTED SOLUTIONS

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APOLLO SHOES, INC. An Audit Case to Accompany AUDITING AND ASSURANCE SERVICES SUGGESTED SOLUTIONS Introduction We designed the Apollo Shoes audit case to introduce students to the entir... e audit process, from planning the engagement to drafting the final report. Students are asked to assume the role of a veteran of two-to-three “busy” seasons, “in-charging” for the first time. Communication between the students and client personnel and other firm members takes the form of e-mail messages from the engagement partner (Arnold Anderson), the engagement manager (Darlene Wardlaw), an intern (Timothy Crumpler) assigned to do the “grunt work”, and the director of Apollo’s internal audit department (Karina Ramirez). Required assignments and memos are in bold print. The solution manual highlights the assignments at the beginning of each section and provides highlights and teaching tips for each section. The Anderson, Olds, and Watershed intranet site (found at the textbook website: www.mhhe.com/louwers7e/) has many useful resources for the students, such as a repository of electronic documents (so that they won’t need to input data or retype documents), an archive of e-mail messages and their attachments, and a bulletin board of frequently asked questions (FAQ) so that they may find assistance from other members of the firm (um, actually, that would be us!). The information is sequential in nature. In other words, the students must pay close attention to information disclosed early in the audit (for example, in the Board of Director’s minutes) as the information may play a role in subsequent audit work. Similarly, the bank cutoff statement in the cash workpapers and invoices used for valuing inventory may be useful later in the search for unrecorded liabilities. Yes, the title says “Suggested Solutions.” Depending upon a number of different factors, students may come up with many different answers. We have listed all the intentional mistakes in the following documents, but as the standard audit report states, many of the proposed adjustments depend upon student’s “assessment of the accounting principles used and significant estimates made by management, as well as their evaluation of Apollo’s overall financial statement presentation.” We have provided a value for each estimate in order to prepare the year end audited financial statements, however, as the instructor you have the advantage of changing various estimate parameters, in case the solutions “get out” from one semester to another. Thus, if the solution does get out, students must still justify their estimates of the allowance for doubtful accounts, estimates of the reserve for inventory obsolescence, etc. Additionally, we have left in some troubling accounting issues (i.e., when is an intangible asset impaired?) that may cause differences in the numbers students report. Finally, students may be able to justify a number of different reports other than the one we suggest (qualified opinion for a GAAP departure with a going concern disclosure, an emphasis of a matter, and a reference to other auditors). We believe these issues are one of the strength of the case, even though it may cause us as instructors to be cautious in our grading. While we designed the case to be completed by students individually, we recommend the case be given to groups of two or three. We have found that stronger students are able to help weaker students in a group-learning environment, leading to a better educational experience for all group members. We also require students to turn in evaluations of the other group members to inhibit “free rider” behavior. Based upon our students’ estimates, the case can be completed in approximately 80-120 hours. [Show More]

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