I need help with this assignment

u n Apollo Internal Controls Audit Mini Case In this mini-case you will perform some internal control testing procedures required as part of audit planning. You will focus on both understanding the design of internal controls as well as testing the operation of controls For ease your audit manager has already organized the workpapers and completed sweral of the required workpapers. Instructions: Read the email from your manager, then read the steps in the audit program found on Work Paper C-0 and familiarize yourself with the other work papersi Complete all the steps on the audit program instructed by your manager. When you are nished with the items on the workpaper enter your initials in the box in the top right marked "Prepared By" This entire com I leted workbook should be renamed as ICFR Fixstnome Lnstnnme and u - loaded. % These emails are NOT U workpapers. Rather they are useful communications for completing your case. They do not get a workpaper reference. Date: 10 JAN 2021 12:37:42 +0000 From: "Darlene Wardlew' {DWGaow.cpa> Subject: Internal Control Testing Happy Saturday! I know this is unexpected but I just realized that we need to wrap up some of this control testing before we move on to our other procedures next week In October when Taylor and I went out to do interim testing we were able to make progress but there are a few things that need to get taken care of. First for the revenue cycle testing, Taylor already identied the controls and did a small sample of walkthroughs. Would you please do 5 more? I went ahead and got the documents you'll need from Samuel. We just need to update that operations testing U through to the end of the year to ensure we get control coverage. I also just noticed. that apparently we haven't completed any of the purchasing cycle testing. I can't believe I didn't catch this until now! I was pretty spacey right before my cruise so that seems to be where my mind was. If you'll get us started by reading through the narrative and identifying their internal controls, then building a ow chart and a. testing workpaper similar to the revenue one at C-4 and C-5. Once that is done we can request a sample to nish the testing. I'll have Taylor do that next week. Sony to crash your weekaid like this. Thanks (in advance) for being an awesome team playa'. DW FYE 12/31/2020 Workpaper Related Assertion (s) Performed by Comments Reference 1. Obtain an understanding of the company, its internal control, and its audit risk factors (including the risk of material misstatements due to fraud) Hold a discussion among engagement team members about See team comments on C-1. DW, TC, JK, the risks of material misstatements due to fraud. C-1 AA a Document the discussion. Per our preliminary discussions with Make inquiries of management and other employees about N/A DW management no abnormal risks were the risks of fraud. Document the inquiry procedures. b identified. 2 Consider the existence of fraud risks factors. Identify and assess risks of material misstatements due to C-1 DW a fraud and develop your responses. Complete documentation of understanding of the revenue C-3, C-4, C-5 TC b and collection, and purchasing cycle. 3 Complete a test of controls for the Revenue Cycle a Document internal controls related to revenue. C-3 TC 10 Controls noted. Darlene Wardlaw: Taylor b Identify significant controls for major transaction cycles. did the revenue stuff - but Select a sample of transactions to test for control operation. we still need to complete C-5 TC 5 Controls remain to be tested after year end. the purchasing stuff. C Document any deviations. 4 Complete a test of controls for the Purchasing Cycle a Document internal controls related to purchases. b Identify significant controls Select a sample of transactions to test for control operation. Document any deviations.Apollo Shoes, Inc. Consideration of Fraud Memo December 31, 2020 We identied the following key risk factors: 1) Signicant competition in industry. 2) Control environment dominated by one individual. 3) Trending a signicant increase in net income despite stagnant sales. 4) Emphasis on meeting protability targets. 5) Concerns over product quality based upon sales returns and product litigation. 6) Concerns over inability to speak with predecessor auditor over their withdrawal after last year's engagement. In response to these key risk factors, the professional literature requires that as an audit team we: Place an increased emphasis on professional skepticism. Putting aside any prior beliefs as to management's honesty, the audit team must exchange ideas or brainstorm how frauds could occur. These discussions are intended to identify fraud risks and should be conducted while keeping in mind the characteristics that are present when auds occur: incentives, opportunities, and ability to rationalize. Throughout the audit, our engagement team should think about and explore the question, "If someone wanted to perpetrate a fraud, how would it be done?" From these discussions, our engagement team should be in a better position to design audit tests responsive to the risks of fraud. Have discussions with management. Our engagement team is expected to inquire of management and others in the organization as to the risk of fraud and whether they are aware of any frauds. We should make a point of talking to employees in and outside management. Giving employees and others the opportunity to "blow the whistle" may encourage someone to step forward. It might also help deter others from committing fraud if they are concerned that a co-worker will turn them in. Perform unpredictable audit tests. During the audit, we must test areas, locations and accounts that otherwise might not be tested. The team should design tests that would be unpredictable and unexpected by the client. Respond to management override of controls. Because management is often in a position to override controls in order to commit nancial-statement fraud, the standard includes procedures to test for management override of controls on every audit. C-l .- Apollo Shoes, Inc C-2 Revenue Accounting Manual PBC 31-Dec-20 APOLIO SHOES ACCOUNTING AND CONTROL PROCEDURE MANUAL Sales and Accounts Receivable Daily sales invoices shall be analyzed by sales totals in the athletic shoes product lines. Sales credits are coded to three product line sales revenue accounts. Charges to customer accounts should be dated the date of shipment. When sales invoices are computer generated, the numerical sequence shall be checked by an accounts receivable clerk monthly, and missing invoices must be explained and voided. The items shipped (as noted on the pick slip) shall be compared to the items billed for proper quantity, price, and other sales order terms. The general ledger supervisor shall compare the daily sales totals with the individual accounts posting total sent from the accounts receivable department. Discrepancies shall be investigated to help assure that the customer subsidiary accounts are posted for the same total amount posted to the control account. At the end of each month, the total of the trial balance of customer account balances (prepared by the accounts receivable department) shall be reconciled to the general ledger control account by the general ledger supervisor. Sales invoices shall be dated with the date of shipment, and totals (including product line sales for athletic shoes) are automatically accumulated and recorded in the accounts receivable control and sales revenue accounts. The general ledger supervisor shall approve all monthly summary returns entries before they are posted to the general ledger. The treasurer shall approve all cash refunds and allowance credit memos for sales returns, aer initiation by customer relations personnel. The marketing vice president shall periodically analyze sales activity by product lines in comparison to budgets and forecasts and prior years' activity. Cash Management The monthly bank statements shall be accessed online and maintained by the cash management department in the treasurer's ofce. Personnel use the duplicate deposit slips retained when bank deposits were made, the cash receipts journal listing, and the cash disbursements listing to reconcile the general bank accounts. The payroll bank account is also reconciled, utilizing the payroll register retained by the treasurer's ofce. Cash management personnel shall compare cash receipts journal daily deposit records with the bank deposits and duplicate deposit slips when the general bank account reconciliation is performed. At the discretion of the director of internal audit, internal auditors will occasionally make unannounced reviews of the bank account reconciliations. They may also prepare reconciliations without prior notice given to cash management personnel. Cash Receipts and Accounts Receivable Processing All cash receipts from customers related to sales shall be credited to accounts receivable individual and control accounts. The accounts receivable department shall post credits to individual customer accounts, dating the entries with the date of the remittance list. Statements of accounts receivable balances shall be mailed or emailed to customers each month by the accounts receivable accounting department. Customers' reports of disputes or differences shall be handled by customer relations personnel in the marketing department. Revenue narrative and controls Documentation Prepared by: PBC, TC 3 l -Dec-20 Reviewed by: Apollo Accounting and Control Systems: Revenue and Collection Cycle As evident in the company organization chart (A-S), Apollo has several departments and ofces concerned with management, accounting, and control. The company also has an abbreviated accounting and control manual (C-2), although the manual has not been kept up to date. Ofcers and employees have described accounting and control procedures informally under the heading of several transaction cycles. Descriptions of the company's current revenue cycle activities appear below. Credit'ApprovuI and Sales Processing Customer orders are received primarily via the company website, but also accepted in the mail, over the telephone, and over the counter by salesclerks in the marketing department. Online orders are assigned an order number (RC #1) when completed by the customer or sales associate The sales order documents used in the o'ice are not prenumbered but are assigned an electronic number as soon as they are entered into the system. The clerks prepare online sales orders for telephone and counter customers, printing and then signing each one and asking the counter customers to sign in person. All sales orders contain the customer name, a customer number (usually the phone number/assigned immediately for new customers), customer address, identication of products, and the quantity ordered (RC #2). Hard copies of sales order forms with signatures are kept in the saiesclerks' working area through which many people pass during the day. All sales orders are entered into the computer system daily by the salesclerks (RC #3). The salesclerks prepare an estimate of the dollar amount of the order and write it on the form. For online orders this is done automatically. The sales orders are then sent to the credit manager, who is also in the marketing department, The credit manager manually checks new customers' credit le information using a computer-based inquiry system. If credit is approved, the credit manager approves the sales order. Online orders for established customers are automatically checked based on thresholds set and managed by the credit manager (RC #4), It' credit is not approved, the customer is asked to pay in advance, and the sales order is held until notication of payment is received from the cashier (RC #5). The sales order is stamped or marked \"paid\" and sent to the billing department (RC #6). Likewise, when customers pay cash over the counter, the money is taken by the cashier, and the sales order is marked \"paid\" within the sales order system and sent to the billing department. For bookkeeping convenience, these \"cas " sales are treated the same as credit sales, with the invoice amount being charged to an account receivable set up for the customer, and the customer's payment being applied immediately to the same account. After credit has been approved, or a payment received, the sales orders are sent to the billing departtnent in the controller's ofce. The billing clerks produce a sales invoice assigned an invoice number by the system. They double check the customer and product information from the customer order, the date, and the product unit prices from an approved price list (RC #7). Sales taxes, delivery charges, and the invoice total are computed and put on the invoice. The sales invoice, the customer order, and the sales order are sent to the accounts receivable accounting department, which is also in the controller's ofce. These e- documents are held in invoice numerical order in a \"pending shipment\" le, awaiting matching with the shipping forms (RC #8). Shipment and Delivery Upon receipt of a sales order which serves as the authorization to move goods to the shipping area (RC #9), the inventory Storekeeper supervises removal of shoe products from shelves and bins. Warehouse employees utilize tablets and cloud based inventory tracking software to fulll orders. The tablet displays sales order, and product location (RFID scanning technology) for all customer orders. As products are picked they are scanned and entered into soware which ows throughto the shipping receipt which ows to the sales invoice, adjusts inventory levels, and produces shipping information (weights, destination etc). Before the package is shipped all documentation is reviewed by an inventory manager (RC #10). If partial orders are shipped due to lack of in stock inventory the sales order with the remaining items is placed in an electronic que (master pending le) to fulll the order when inventory becomes available. Shipping information, once complete is sent to the billing and accounts receivable department. Apollo Shoes, Inc C-4 Revenue controls Documentation PBC 31-Dec-20 If orders are Sales Order made via Customer Order telephone or in Created person the sales Hard copy sales Marketing/Sales clerk signs and orders maintains a copy in the sales area. Customer asked to pay in .No- advance. Order Tresurer/Credit Mgr Credit Approval? held until payment is made. Accounts Sales Inventory Cloud Master Price Credit Files Receivables File Database Database Database Yes Copy sent to customer AR Adjusted/Closed Shipping Sales Recording Controller Credit Approval Sales Order Payment Confirmation Invoice and Aging of received Cash Recorded Receivables Order Closed Inventory Items Sales Order Picked and Shipping label Shipping receipt Operations PackedWalkthrough Testing - Revenue C-5 Apollo Shoes, Inc Prepared by: PBC, TC Revenue controls Documentation Reviewed by: 31-Dec-20 Voucher#32263 Voucher#34229 Voucher#36112 Voucher#38488 Voucher#40009 Voucher#41775 Voucher#41899 Voucher#40814 Voucher#41617 Voucher#41317 RC-1 All orders are assigned an order number Effective Effective Effective Effective Effective RC-2 Sales orders require customer name, phone number, address, product name and quantity in order to generate. Effective Effective Effective Effective Effective RC-3 All sales order made offline reviewed and entered daily N/A N/A N/A N/A Effective RC-4 The credit manager reviews all new credit requests. And sets electronic thresholds. Effective Effective Effective Effective N/A RC-5 When credit is not approved, orders are not filled unless payment is made. N/A N/A N/A N/A Effective RC-6 Once payment is made all orders are stamped paid. Effective Effective Effective Deficient Effective RC-7 Invoices are reviewed for correct products, prices, and customer info. Effective Effective Effective Effective Effective RC-8 Pending shipping documents are matched with sales orders and invoices. Effective Effective Effective Effective Effective RC-9 A sales order is required to pick/pack and ship goods Effective Effective Effective Effective Effective RC-10 Before packages are shipped they are reviewed by an inventory manager. Effective Effective Effective Effective Effective A - Voucher #38488 was not stamped paid per RC-6. However it appears that the payment was made (pmt ID -Wgoyo2). Therefore it appears that this incident was a minor oversight. No further testing necessary.Apollo Shoes, Inc C-6 Purchasing narrative and controls Documentation Prepared by: PBC, TC 31-Dec-20 Reviewedb : _ Asset or Supply Purchase Requisition For each required purchase the department manager of the requesting department will review and approve an employee's written request. Then helshe will submit a request via the intranet system to purchasing. Once reviewed by the purchasing team it is approved by the purchasing manager. Once approved the request is assigned to a purchaser who then places the order with a vendor from an approved vendor list. Receipt of Goods Once an approved purchase has been received it is opened and all contents are compared to the original purchase order and documented by an individual in the warehouse. Once the receipt of goods is complete it is sent to purchasing for matching to relevant documents and forwarding to either accounts payable or to be led as complete. The goods are forwarded on to the requesting department. Cash Disbursements All disbursements shall be made by check, signed by the treasurer, including reimbursements of the petty cash funds. Checks shall be made payable to a named payee and not to \"cash.\" Blank check stock shall be kept under lock and key in the accounts payable accounting department. Under no circumstances may blank checks be signed by the treasurer. Voided checks shall be transmitted to the treasurer for inspection and later led in numerical order with paid checks. Cash disbursement journal entries shall be dated with the date of the check. The related monthly general ledger summary entries shall carry the date of the month summarized