Apollo Planning Audit Mini Case

In this mini-case you will perform some procedures required as a part of audit planning. For ease your audit manager
organized the workpapers and completed several of the required workpapers.
Instructions:

Read the email from your manager, then read the steps in the audit program found on Work Paper A-0 and familiariz
other planning section work papers. Complete all the steps on the audit program instructed by your manager.

When you are finished with the items on the workpaper enter your initials in the box in the top right marked "Prepare

This entire completed workbook should be renamed as PLAN2_Firstname_Lastname and uploaded.

These emails are NOT
workpapers. Rather they are
useful communications for
completing your case. They do
not get a workpaper reference.
 Apollo Shoes, Inc. A-0
AUDIT PLAN—PLANNING You are responsible for completing all steps highlighted in green.
FYE 12/31/2020
Workpaper Performed
Related Assertion (s) Comments
Reference by
1 Complete client engagement acceptance form. TBA DW
The PY 10K is included in the
Review correspondence files, prior year audit workpapers at A-3, the PY workpapers
workpapers, permanent files, financial statements and NA DW are not available per Apollo. See board
auditor's reports. of director meeting minutes for more
information A-3.
2
Trial balance obtained on 01/01/2021
Obtain 2019 audited trial balance and 2020 unaudited from Samual Carboy, Apollo Controller.
A-1 and A-2 DW
trial balance.
3
4 Obtain and review a copy of the prior year 10K. A-3 DW Obtained by DW on 12/24/2020.
Foot balances and ensure mathematical accuracy of DW will check it at the end of the year
A-2 DW
a PBC trial balances.
Trace prior period balances to the closing balance in DW will check it at the end of the year
A-2 DW
b the prior period's financial statements (10-K).
Determine the extent of involvement, if any, of Some reliance on internal audit will be
NA DW
5 consultants, specialists, or internal auditors. necessary.
Apollo Director of Internal Audit -
Karina Ramirez will be assisting on the
audit, per my (DW) review of her
If the work of another is being used in the
qualifications and the organizational
engagement, determine that it is used in accordance NA DW
structure of Apollo I have concluded
with professional standards.
that she is both objective and competent.

a
Notes on A-3.
Review the minutes of the board of directors and
committee meetings for the year and any new
agreements, leases, contracts, or other important
documents. Obtain copies of the minutes or
A-3 TC
agreements for the current or permanent workpaper
files. Highlight matters relevant to the related
audit area or for which disclosure will be required
in the financial statement or notes.
6
Signed copy of engagement letter
Obtain an engagement letter from the client. A-4 DW received from the client on November
7 20, 2020.
TC will set level of materiality and
Complete Materiality Memo. A-5 TC
8 complete the memo accordingly
Rough draft completed, new senior to
Complete a time budget by audit area. A-6 DW
9 track and expand time tracking.
Determine staffing assignments based on Staff determined as of 12/01/2020
consideration of audit risks, and discuss the
preliminary audit plan and key dates, i.e. inventory A-7 DW
observation, mailing of confirmations, etc. with the
10 audit staff.
Electronically signed by all firm
Complete independence forms for all firm employees. NA NA employees and filed on firm intranet as
11 of December 31, 2020.
 2019 Trial Balance
Apollo Shoes, Inc
Trial Balance (Audited)
31-Dec-19

Account ID Account Description Debit

10100 Cash on Hand $1,987.28
10200 Regular Checking Account $198,116.52
10300 Payroll Checking Account $0.00
10400 Savings Account $3,044,958.13
11000 Accounts Receivable $16,410,902.71
11500 Allowance for Doubtful Accounts
12000 Inventory - Spotlight $18,825,205.24
12300 Reserve for Inventory Obsolescence
14100 Prepaid Insurance $743,314.38
14200 Prepaid Rent $200,000.00
14300 Office Supplies $7,406.82
14400 Notes Receivable-Current
14700 Other Current Assets
15000 Land $117,000.00
15100 Buildings and Land Improvements $623,905.92
15200 Machinery, Equipment, Office Furniture $433,217.10
17000 Accum. Depreciation
19000 Investments $572,691.08
19900 Other Noncurrent Assets $53,840.59
20000 Accounts Payable
23100 Sales Tax Payable
23200 Wages Payable
23300 FICA Employee Withholding
23350 Medicare Withholding
23400 Federal Payroll Taxes Payable
23500 FUTA Tax Payable
23600 State Payroll Taxes Payable
23700 SUTA Tax Payable
23800 FICA Employer Withholding
23900 Medicare Employer Withholding
24100 Line of Credit
24200 Current Portion Long-Term Debt
24700 Other Current Liabilities
27000 Notes Payable-Noncurrent
39003 Common Stock

Copyright © 2018 McGraw-Hill Education. All rights reserved.

39004 Paid-in Capital
39005 Retained Earnings
40000 Sales
41000 Sales Returns $4,497,583.20
42000 Warranty Expense $1,100,281.48
45000 Income from Investments
46000 Interest Income
50010 Cost of Goods Sold $141,569,221.61
57500 Freight $4,302,951.46
60000 Advertising Expense $897,140.01
61000 Auto Expenses $208,974.39
62000 Research and Development $31,212,334.17
64000 Depreciation Expense $133,000.00
64500 Warehouse Salaries $4,633,383.82
65000 Property Tax Expense $80,495.32
66000 Legal and Professional Expense $3,605,133.96
67000 Bad Debt Expense $1,622,425.99
68000 Insurance Expense $853,942.65
70000 Maintenance Expense $61,136.04
70100 Utilities $135,642.99
70110 Phone $76,373.78
70120 Postal $128,033.21
71000 Miscellaneous Office Expense $17,023.27
72000 Payroll Tax Exp $1,550,989.06
73000 Pension/Profit-Sharing Plan Ex $3,000,000.00
74000 Rent or Lease Expense $2,603,485.87
77500 Administrative Wages Expense $16,875,305.98
78000 Interest Expense $875,000.00
78500 Income Tax Expense - Federal $2,365,000.00
78510 Income Tax Expense - State $429,000.00
80000 Loss on Legal Settlement $19,172,000.00

Copyright © 2018 McGraw-Hill Education. All rights reserved.

 PBC

Credit Single Column format

$1,987.28
$198,116.52
$0.00
$3,044,958.13
$16,410,902.71
$1,262,819.88 ($1,262,819.88)
$18,825,205.24
$3,012,000.00 ($3,012,000.00)
$743,314.38
$200,000.00
$7,406.82
$0.00
$0.00
$117,000.00
$623,905.92
$433,217.10
$163,500.00 ($163,500.00)
$572,691.08
$53,840.59
$4,633,118.09 ($4,633,118.09)
$0.00 $0.00
$29,470.32 ($29,470.32)
$1,318.69 ($1,318.69)
$583.99 ($583.99)
$6,033.01 ($6,033.01)
$0.00
$2,815.47 ($2,815.47)
$0.00
$1,318.69 ($1,318.69)
$583.99 ($583.99)
$10,000,000.00 ($10,000,000.00)
$0.00
$0.00
$0.00
$8,105,000.00 ($8,105,000.00)

Copyright © 2018 McGraw-Hill Education. All rights reserved.

 $7,423,000.00 ($7,423,000.00)
$2,219,620.65 ($2,219,620.65)
$246,172,918.44 ($246,172,918.44)
$4,497,583.20
$1,100,281.48
$0.00 $0.00
$204,302.81 ($204,302.81)
$141,569,221.61
$4,302,951.46
$897,140.01
$208,974.39
$31,212,334.17
$133,000.00
$4,633,383.82
$80,495.32
$3,605,133.96
$1,622,425.99
$853,942.65
$61,136.04
$135,642.99
$76,373.78
$128,033.21
$17,023.27
$1,550,989.06
$3,000,000.00
$2,603,485.87
$16,875,305.98
$875,000.00
$2,365,000.00
$429,000.00
$19,172,000.00

Copyright © 2018 McGraw-Hill Education. All rights reserved.

 Apollo Shoes, Inc PBC
Preclosing Trial Balance A-2
31-Dec-20

Account ID Account Description Debit Amt Credit Amt Single Column format
10100 Cash on Hand $2,275.23 $2,275.23
10200 Regular Checking Account $557,125.92 $557,125.92
10300 Payroll Checking Account $0.00
10400 Savings Account $3,645,599.15 $3,645,599.15
11000 Accounts Receivable $51,515,259.98 $51,515,259.98
11400 Other Receivables $1,250,000.00 $1,250,000.00
11500 Allowance for Doubtful Accounts $1,239,009.75 ($1,239,009.75)
12000 Inventory $67,724,527.50 $67,724,527.50
12300 Reserve for Inventory Obsolescence $846,000.00 ($846,000.00)
14100 Prepaid Insurance $3,424,213.78 $3,424,213.78
14200 Prepaid Rent $0.00
14300 Office Supplies $8,540.00 $8,540.00
14400 Notes Receivable-Current $0.00
14700 Other Current Assets $0.00
15000 Land $117,000.00 $117,000.00
15100 Buildings and Land Improvemen $674,313.92 $674,313.92
15200 Machinery, Equipment, Office Fu $2,929,097.13 $2,929,097.13
17000 Accum. Depreciation $610,000.00 ($610,000.00)
19000 Investments $1,998,780.39 $1,998,780.39
19900 Other Noncurrent Assets $53,840.59 $53,840.59
20000 Accounts Payable $1,922,095.91 ($1,922,095.91)
23100 Sales Tax Payable $0.00
23200 Wages Payable $0.00
23300 FICA Employee Withholding $8,439.65 ($8,439.65)
23350 Medicare Withholding $11,414.99 ($11,414.99)
23400 Federal Payroll Taxes Payable $118,086.12 ($118,086.12)
23500 FUTA Tax Payable $0.00
23600 State Payroll Taxes Payable $55,106.86 ($55,106.86)
23700 SUTA Tax Payable $0.00
23800 FICA Employer Withholding $8,439.65 ($8,439.65)
23900 Medicare Employer Withholding $11,414.99 ($11,414.99)
24100 Line of Credit $44,403,000.00 ($44,403,000.00)
24200 Current Portion Long-Term Debt $0.00
24700 Other Current Liabilities $0.00
27000 Notes Payable-Noncurrent $12,000,000.00 ($12,000,000.00)
39003 Common Stock $8,105,000.00 ($8,105,000.00)
39004 Paid-in Capital $7,423,000.00 ($7,423,000.00)
39005 Retained Earnings $6,590,483.64 ($6,590,483.64)
40000 Sales ### ($242,713,452.88)
41000 Sales Returns $11,100,220.89 $11,100,220.89
42000 Warranty Expense $1,158,128.47 $1,158,128.47
45000 Income from Investments $1,426,089.31 ($1,426,089.31)
46000 Interest Income $131,881.46 ($131,881.46)
47000 Miscellaneous Income $2,166,000.00 ($2,166,000.00)
50010 Cost of Goods Sold $130,196,645.26 $130,196,645.26
57500 Freight $4,240,263.09 $4,240,263.09
60000 Advertising Expense $1,036,854.01 $1,036,854.01
61000 Auto Expenses $210,502.80 $210,502.80
62000 Research and Development $528,870.44 $528,870.44
64000 Depreciation Expense $446,000.00 $446,000.00
64500 Warehouse Salaries $4,720,715.56 $4,720,715.56
65000 Property Tax Expense $99,332.45 $99,332.45
66000 Legal and Professional Expense $4,913,224.45 $4,913,224.45
67000 Bad Debt Expense $0.00
68000 Insurance Expense $36,106.92 $36,106.92
70000 Maintenance Expense $35,502.87 $35,502.87
70100 Utilities $137,332.18 $137,332.18
70110 Phone $52,599.02 $52,599.02
70120 Postal $77,803.61 $77,803.61
71000 Miscellaneous Office Expense $24,891.82 $24,891.82
72000 Payroll Tax Exp $1,577,811.85 $1,577,811.85
73000 Pension/Profit-Sharing Plan Ex $3,630,375.80 $3,630,375.80
78600 Controllers' Clearning Account $330,375.80 ($330,375.80)
74000 Rent or Lease Expense $1,206,574.00 $1,206,574.00
77500 Administrative Wages Expense $16,197,225.43 $16,197,225.43
78000 Interest Expense $2,591,736.50 $2,591,736.50
78500 Income Tax Expense - Federal $8,900,000.00 $8,900,000.00
78510 Income Tax Expense - State $3,100,000.00 $3,100,000.00
$330,119,291.01 ###

Copyright © 2018 McGraw-Hill Education. All rights reserved.


2019 10-K and assorted documents
Apollo 2019 10-K
Apollo CEO Letter to
Shareholders
Apollo Organization Chart
Board of Directors and Audit
Committee Meeting Minutes
Email from CAE and info See additional materials
about new computer system
Apollo Shoes, Inc
31-Dec-20
This WP includes several document
See additional materials The following items could be note
Information Relevant to 2020 Audi
Audit Action Recommended
January 06, 2020 
Larry Lancaster, Chairman, Presiden
Sales expected to increase 10% - No
COGS and exp. to remain constant -
See additional materials Authorized purchase of $1.3 million
ST credit refinanced, rolled into LT N
Officers’ salary increase 10% - Note
Cost of Superbowl ad rose 10% ($1
June 30, 2020
Damages from “Nor’easter” cost $5
See additional materials Company raised prices 10% to meet
Stopped R&D on Phoneshoe. - Impl
Postage and telephone expense sav
Write-off A/R for $23,810.13. - Was
Advanced $1.25 million to Larry Lan
Authorized $1 million for purchase
Authorized $44,403,000 draw on LO
January 6, 2021
 
Anderson, Olds, and Watershed hire
See additional materials Approved cash dividend ($860,000)
Reported a $12 million negligence s
Machinery purchased in early 2017
Approved bonuses for 12/31/20 - $
Company approved $3,300,000 con
No Superbowl ad this year - Note fo
 
 
P includes several documents considered critical to the audit planning process.

lowing items could be noted by the student to be of significance to the audit:

ation Relevant to 2020 Audit

ction Recommended
y 06, 2020 
ncaster, Chairman, President, and CEO is a new hire. - Investigate Larry’s background?
xpected to increase 10% - Note for analytic review of expenses
nd exp. to remain constant - Note for analytic review of expenses
zed purchase of $1.3 million in equipment. - Vouch to supporting documentation, trace to PP&E workpapers.
t refinanced, rolled into LT N/P - Note for liabilities work; ensure proper accounting and disclosure.
’ salary increase 10% - Note for payroll analytic procedures
Superbowl ad rose 10% ($1 million). - Note for review of expenses

, 2020

es from “Nor’easter” cost $50,000. - Should be treated as repair, rather than capital addition
ny raised prices 10% to meet expectations - Examine reasons for not meeting goals
d R&D on Phoneshoe. - Implications for intangible assets?
and telephone expense saved through e-mails - Note for analytic procedures involving expenses.
ff A/R for $23,810.13. - Was that the only write-off?
ed $1.25 million to Larry Lancaster’s secretary (personal) - Related party transaction should be disclosed in footnotes. 1% interest
zed $1 million for purchase of computer systems. - Verify purchase.
zed $44,403,000 draw on LOC. - Verify the accounting for the liability.

y 6, 2021

on, Olds, and Watershed hired (fee $750,000)X-1 - Fee should be included in Professional Expenses
ed cash dividend ($860,000) (disbursed 03/01/21 for SH of record 12/31/20) - Dividend should be accrued.
ed a $12 million negligence suit - Contact client attorneys, possible contingent liability.
ery purchased in early 2017 not operational - Check on status.
ed bonuses for 12/31/20 - $450,000 bonuses should be accrued at 12/31/20
ny approved $3,300,000 contribution to EBP - Note for footnotes.
erbowl ad this year - Note for analytic procedures
 A-3
Prepared by: DW/TC
Reviewed by: AA

tes. 1% interest
 Signed Engagement Letter
Apollo Shoes, Inc.
12/31/2020
October 26, 2020 
Mr. Larry Lancaster, Chairman
Apollo Shoes, Inc.
Shoetown, ME
 
Dear Mr. Lancaster:
 
This will confirm our understanding of the arrangements for auditing Apollo Shoes, Inc. financial stat
We will audit the balance sheet at December 31, 2020, and the related statements of income, retained
year ending that date. Our audit will be made in accordance with the Standards of the Public Company Ac
will include such tests of the accounting records and such other auditing procedures as we consider necess
Our audit will be based on samples of recorded transactions. We will plan the audit to detect material
your financial statements. Our work, however, is subject to the unavoidable risk that errors, frauds, and il
We expect to obtain reasonable, but not absolute, assurance that major misstatements do not exist in the fi
regarding your system of internal control, including information about significant deficiencies and materia
the audit committee of your board of directors in a separate letter at the close of the audit.
At your request, but pending approval by your Board of Directors, we will prepare all required federa
franchise tax returns.
We will provide your staff with a list of schedules needed by our staff during the audit. The delivery d
mutually agreed upon. We understand that your staff will prepare all the schedules in the package, all the
thereto, and the Form 10-K for our review. The scope of our services does not include preparation of any
Ms. Darlene Wardlaw will be the manager in charge of all work performed for you. She will inform y
any circumstances that could significantly affect our fee estimate of $750,000 discussed with you on Octo
due date for the audit report, March 15, 2021. You should feel free to call on her at any time.
If the specifications above are in accordance with your understand of the terms of our engagement, ki
duplicate copy to us. We look forward to serving you as independent public accountants.

Accepted by____/s/ Larry Lancaster_______________________ Date __11/02/2020__________

 A-4

hoes, Inc. financial statements for 2020.

ts of income, retained earnings, and cash flows for the
he Public Company Accounting Oversight Board and
s as we consider necessary.
audit to detect material errors and frauds that may affect
at errors, frauds, and illegal acts, will not be detected.
ts do not exist in the financial statements. Our findings
eficiencies and material weaknesses, will be reported to
audit.
pare all required federal tax returns and the state

e audit. The delivery dates have been discussed and

in the package, all the financial statements and notes
ude preparation of any of these financial statements.
you. She will inform you immediately if we encounter
ssed with you on October 17, 2020. She is aware of the
any time.
of our engagement, kindly sign below and return the
ntants.

20__________
 Apollo Shoes
ENGAGEMENT MATERIALITY
(Required for all engagements)

CLIENT: Apollo Shoes

PERIOD ENDED: December 31, 2020

This completed form must be provided to the engagement quality control reviewer in the planni
stage of every audit. Please complete all the cells highlighted in yellow.

PLANNING MATERIALITY CALCULATION

Only if the current year net income (loss) (or other measure) is significantly
different from the entity’s historical results would 2-year averaging to obtain
normalized net income (loss) (or other measure) be appropriate.
PROFIT ORIENTED ENTITIES Current Year Prior Year
Net income (loss) 53,649,082 4,371,363
Plus (minus) unusual, non-recurring
revenues and expenses, and extraordinary
items. - -

ADJUSTED NET INCOME (LOSS) 53,649,082 4,371,363

Adjusted net income (loss) multiplied
by:
5% 2,682,454 218,568

Current Year
TOTAL ASSETS 131,205,564 36,793,726

Total assets multiplied by:

1% 1,312,000 368,000

Current Year
TOTAL REVENUES 231,613,232 241,675,335
Plus (minus) unusual, non-recurring
revenues -
ADJUSTED REVENUES 231,613,232.00 241,675,335.00

Total adjusted revenues multiplied by:

 1% 2,316,132 2,416,753

JUSTIFICATION OF PLANNING MATERIALITY

1. Financial data source (i.e. actual, Year end trial balance, actual data obtained from client.
budget, projection):

Adjusted net income

2. Basis (i.e. normalized net income,
revenue, total assets, other):
Justification: concludig on the basis of prior experience with the
client. It can be concluded that adjusted income is the
best base for planning materiality

3. Percentage of financial data source Standard 5% used.

used:

4. Amount selected (planning

materiality) 2,682,454

Being that Apollo is a new client and we were not

5. Prior year’s final materiality
6. Performance materiality/Tolerable
misstatement (75% of planning
materiality)
provided with materiality amounts from the
218,568 predecessor auditor, we assume that planning
materiality is 5% of net income from 2019.
2,011,841

7. Listing scope (amount threshold

for suggested adjustments) (using 5%
to 10% of planning materiality based
on expected level of adjustments is
usually appropriate)
5% 134,123

Engagement Partner A. Anderson

Engagement Quality Control
Reviewer Ernest Olds
Maximum 268245466.666667
Minimum 2682454.66666667
 A-5
Prepared by
Reviewed by

viewer in the planning

n yellow.
client and we were not
y amounts from the
ssume that planning
ncome from 2019.
 Apollo Shoes, Inc
Audit Budget
31-Dec-20

Auditor Billing RateAudit Area Projected Hours

Darlene Wardla 357 Planning 300
Taylor Crump 225 Internal Control Testing 275
Senior 298 Cash 150
Senior 298 Accounts Receivable 180
Taylor Crump 225 Inventory 150
Taylor Crump 225 Prepaids 90
Taylor Crump 225 Property, Plant and Equipment 200
Taylor Crump 225 Other Assets 90
Senior 298 Current Liabilities 200
Senior 298 Notes Payable 150
Darlene Wardla 357 Stockholders' Equity 250
Senior 298 Revenue 200
Taylor Crump 225 Expenses 200
 A-6
Prepared by: DW
Reviewed by: AA

Actual Hours Extended Cost

$ 107,100
$ 61,875
$ 44,700
$ 53,640
$ 33,750
$ 20,250
$ 45,000
$ 20,250
$ 59,600
$ 44,700
$ 89,250
$ 59,600
$ 45,000

Total $ 684,715.00
Contracted Price $ 750,000.00
Profit $ 65,285.00
 A-7
Prepared by: DW
Reviewed by:AA

Apollo Shoes, Inc.

Audit Staffing Memo - A-7
December 31, 2020
 
Based on the information reviewed in the Apollo Shoes 10-K, minutes of the board of directors, and other
documents, I believe that the audit team will require the following specialized expertise:
 
a. Special expertise in Apollo's business and products is probably not necessary. The products are ordinary
shoes. The company gave no indication of dealing in complicated transactions such as rubber futures hedging.
Auditors with general retail and wholesale experience ought to be able to cope with the expertise demands.
 
b. The audit team will need some special expertise in several areas: (1) the tax personnel probably know how
to prepare the state franchise tax return, and that expertise might not be very special, (2) auditors with SEC
knowledge and experience will need to participate, and (3) the team will need people with computer expertise
on the engagement.
other

ordinary
s hedging.
mands.

know how
th SEC
expertise