Substantive procedures for detecting asset irregularities in Apollo Shoes

Apollo Shoes Casebook

Apollo Shoes Inc. is a company specializing in the global distribution of high quality tech shoes. Apollo has demonstrated leadership position in electronic shoes, and high tech shoes such as athletic shoes with amplified loudspeakers, and sneakers with a cellular phone. The company brands include SPEAKERSHOE, SPOTLIGHT, and SIREN. While Apollo has enjoyed rapid growth, however, there is a dramatic growth of unaudited Apollo income in the past few years.

The objective of this paper is to outline and substantiate procedures to detect irregularities in the following audit cycles

Accounts receivable

Inventory

Fixed Assets

Accounts receivable

From Apollo Shoe Case, the procedures to detect irregularities in the accounts receivable by Apollo are as follows:

Using the aged balance sheet and the deposit slips from January. The copies from the clients could also be used to tie the total into deposits. The procedure is to detect the cutoff bank statement received from bank. Typically, there are irregularities in the company account receivables (A/R) because the A/R goes up however allowance gets down.

Go through the subsequent cash collect to identify the trouble account, and compares it with the Apollo competitors. There is also a need to check what Apollo has done in the "past such as bad debt expense as a % of sales, allowance for doubtful accounts as a % of total receivables in order to develop your estimate of what should be in the allowance." (Louwers & Manktelow2009 P. 88). The current and previous account receivable Turnover and Days Sales in A/R ratios also needs to be considered to detect irregularities in account receivables.

By following the above auditing procedure, the paper has identified some irregularities in the Apollo account receivables. At the end of the 2011 fiscal years, there is a wide discrepancy between audited and unaudited account receivables of Apollo Inc. The unaudited balance for account receivable as at 12 December 2011 is $49,780,259.98, while audited balance for account receivable as at 12 December 2011 is $16,410,902.71. From the figure presented, there is a difference of 203% between audited and audited account receivable with reference to account prepared on 12 December 2011.

Inventory

There are different procedures to detect irregularities in the inventory of Apollo Inc.

First, there is a need to "tie in Bradley's test counts on the client's count sheets to Apollo's Inventory Warehouse Report and tie the Inventory Warehouse Report to Apollo's Inventory Status Report." (Louwers & Manktelow, 2009 P. 99).

Moreover, there is a need to sample a number of unit costs from the recent invoice and tie them to the inventory status report. The objective is to verify whether the number agrees, and if the number agrees, the next step is to tie inventory lead schedule with the inventory status report.

Finally, there is a need to tie the lead schedule into trial balance. To enhance the accuracy on the detection of irregularities in the inventory, there is also need to follow the following procedure:

First, there is a need to determine the proper account adjustment when inventory is to be excluded and included in the physical account. "Included," indicates inventory already in the general ledger balance and shown in the trial balance. In addition, there is a need to adjust inventory to match the physical account as well as adjusting the cost of goods sold.

More auditing procedure for the Apollo inventory is to physically pay a visit to the company warehouse and instruct the warehouse personnel to open the shoeboxes throughout the warehouse to be sure that shoes were in each of the box.

Next step is to recount all items to test the difference between the test counts and the count made by the clients.

By following the auditing procedure of inventory of Apollo Inc., it is revealed that there are discrepancies in the company inventory. First, Apollo has tried to turn huge number odd shoes to the company principal supplier to decrease the reserve and the costs of good sold.

In addition, the company generally turns over its entire inventory several times in a given year.

Moreover, some pallets of shoes in the warehouse are covered with dust and look very old, and all of them are shoes with men's size 23. These are the samples of odd shoes that Apollo is trying to turn over to its supplier. Based on the irregularities, there is a wide difference between audited and unaudited balance for inventory lead schedule at the year ended 12 December 2011. Unaudited balance is $67,424,527.50 while audited balance is $18,825,205.24 revealing differences of 258%.

Fixed Assets

Following are the procedure to detect irregularities in the fixed assets.

Examine cancelled check

Examine titles and vouching invoices

From the recent addition, there is a need to make sure that all the depreciation amounts are correct.

From the investigation from Sam Shaw, the fixed asset coordinator, "Apollo Shoes moved into new quarters and acquired new equipment in February 2010. Up to that time, Apollo purchased only a fleet of vehicles for key executives and rented everything else." (Louwers & Manktelow, 2009 P. 133).