ACC 491 Week 4 Team Assignment: Apollo Shoes Case - Revenue and Purchasing Cycle Audit

Name: ACC 491 Week 4 Team Assignment: Apollo Shoes Case - Revenue and Purchasing Cycle Audit
Brand: Grand Canyon University
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Author: Ethan Wilson

A team-based assignment analyzing the Apollo Shoes case, focusing on revenue and purchasing cycle auditing.

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Acc 491
Week 4 Memo
1
ACC 491 Week 4 Team Assignment: Apollo Shoes Case - Revenue and
Purchasing Cycle Audit
Based on the Apollo Shoes Case Assignment, critically analyze the control
weaknesses identified in the Revenue and Collection Cycle and their potential
impact on the financial reporting process. In your response, explain the specific
areas where Apollo Shoes' internal controls are deficient, the audit implications,
and the recommendations provided to improve the control procedures.
Additionally, discuss the importance of effective internal controls in ensuring the
accuracy and reliability of financial statements.
Your response should be between 700-1000 words.

Acc 491
Week 4 Memo
2
ACC 491
Week 4
Team Assignment Apollo Shoes Case Assignment
Date:
Memorandum
To: Audit File
CC: Santos Alarcon, Jr.
From: B Team
Date: 2/12/2025
Re: Apollo Accounting and Control Systems: Revenue and Collection Cycle
Details of Control Issues Encountered in the Revenue and Collection Cycle
Objectives: Apollo’s control procedures were tested to obtain control evidence about
the validity, authorization, accuracy, and proper period recording of recorded sales. The
accuracy of classification of sales postings to individual customer accounts receivable
was also tested. Systems tested included authorization, segregation of duties,
information processing controls, such as general, application, and controls over the
financial reporting process, physical controls, performance reviews, and controls over
management discretion in financial reporting.
Our objective was to perform enough in-depth auditing to provide assurance about
errors and fraud in the accounts. The internal controls were tested for effectiveness
using samples of transactions. This was done in accordance with audit standards.
Results: The revenue cycle test of controls for year end 2007 resulted in 51 deviations
of 120 sample transactions. 15 of those transactions resulted in credit memos for
inaccurate pricing or quantities billed. The majority of credit memos were processed in
the third quarter and none were processed in the first half of the year. 31 had no credit
approval of which 10 are outstanding at the date of this audit. The total outstanding

Acc 491
Week 4 Memo
3
invoices without credit approval total over $27 million. Several bills of lading were
missing and a couple arithmetic errors were made.
Response: The unreliability of Apollo’s revenue and accounts receivable controls
required the audit team to do more extensive testing. Positive or negative confirmations
were needed on most accounts. Apollo customers were asked to verify total sales during
the year if not current at the date of the audit.
The finding that all credit memos processed were in the second half of the year indicate
that control procedures were not uniform for the year. Additionally, December
deviations are potential cause of misstatement in the financial statements. Management
is advised to implement and follow control procedures throughout the year.
Credit approval is not being done as required and results in collection issues. Credit
approval and timely collection procedures will reduce the financial problems as were
seen in the fourth quarter.
Missing bills of lading, substantial arithmetic errors with delay in correction, and
deviations resulting in credit memos for overcharges only (no undercharge errors found)
are red flags for potential fraudulent transactions. The missing bills of lading suggest
improperly recorded sales, the lack of mixture of over and under charges, and the lag
time between errors and credit memos are suggestive of misstatement and possibly
fraudulent activity.
Recommendations: Bridge working papers summarize Apollo’s strengths and
weaknesses. Apollo is advised to implement and maintain effective control procedures
that can be adhered to throughout the year.
Some recommendations include:
• Pre-numbered bills of lading with location and explanation of missing BLs
determined.
• Credit approvals should be done for every transaction regardless of history or
size.
• Sales orders should be secured properly and numbered reducing the risk missing
or altered sales orders.
• Create an electronic signature such as a PIN number for telephone orders to
ensure that the customer placing the order is responsible for payment.
• Payment terms should be indicated to customers at time of purchase.
• Collection procedures should be implemented to increase cash flow.

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University

Grand Canyon University

Subject

Accounting

ACC 491 Week 4 Team Assignment: Apollo Shoes Case - Revenue and Purchasing Cycle Audit

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