Mrs. Wardlaw, I am reaching out to you today to discuss the possibility of fraud within the Apollo Shoes financial statements. After reading through some company documents in preparation of this Audit I have noticed multiple red flags that although in themselves do not constitute fraud outright, they do demand that we investigate this issues further to ensure fraud is not taking place. Through my initial research I believe the possibility of fraud at Apollo Shoes to be very high, and as such we must take precautionary measures to avoid risk falling back on the firm. In my next paragraphs I will outline some of the questionable practices I have noticed from the board of directors meeting minutes, and my analytical review, and why these factors
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This purchase in itself wouldn’t be a red flag other that the fact that the board authorized a draw of $44,403,000 on the company’s credit line to fund this purchase, and pay other expenses. This means that the computer purchase makes up 2.7% of the overall draw leading anyone to wonder how you can rationalize the entirety of this draw to pay for a new computer system, and other expenses. This coupled with the fact that 6 months later the computers haven’t been installed with the only hint at when they would be installed is that Mr. Lancaster said that it would be “soon” it’s important that we look further into this transaction and find out where the remaining money was used, and how it is accounted …show more content…
First off this risk forces us to assess a lower level of materiality on the audit. In my professional opinion with all of the glaring risks I recommend that we set a performance materiality of $500,000 or .2% of sales, with a planning materiality of $50,000. With such low materiality and high fraud risk all auditors should be experienced staff auditors, and be on high alert of fraudulent information from Apollo employees, and must be diligent in keeping auditing procedures unpredictable as to not allow employees to cover their tracks. With the risks outlined, and the low materiality level we will need to conduct a significant amount of substantive tests, because it is the only way to get the detection risk to an acceptable level with how high the clients control risk is. To do this we will need to perform substantive testing on at least Accounts receivable, sales, Inventory, Accounts payable, expenses, prepaid expenses, and
This purchase in itself wouldn’t be a red flag other that the fact that the board authorized a draw of $44,403,000 on the company’s credit line to fund this purchase, and pay other expenses. This means that the computer purchase makes up 2.7% of the overall draw leading anyone to wonder how you can rationalize the entirety of this draw to pay for a new computer system, and other expenses. This coupled with the fact that 6 months later the computers haven’t been installed with the only hint at when they would be installed is that Mr. Lancaster said that it would be “soon” it’s important that we look further into this transaction and find out where the remaining money was used, and how it is accounted …show more content…
First off this risk forces us to assess a lower level of materiality on the audit. In my professional opinion with all of the glaring risks I recommend that we set a performance materiality of $500,000 or .2% of sales, with a planning materiality of $50,000. With such low materiality and high fraud risk all auditors should be experienced staff auditors, and be on high alert of fraudulent information from Apollo employees, and must be diligent in keeping auditing procedures unpredictable as to not allow employees to cover their tracks. With the risks outlined, and the low materiality level we will need to conduct a significant amount of substantive tests, because it is the only way to get the detection risk to an acceptable level with how high the clients control risk is. To do this we will need to perform substantive testing on at least Accounts receivable, sales, Inventory, Accounts payable, expenses, prepaid expenses, and