Apollo Shoes Case

TO: MS. DARLENE WARDLAW

FROM: XXXXX XXXXX

SUBJECT: FIRST THOUGHTS ON APOLLO SHOES, INC.

DATE: JUNE 5, 2012

After having read the company’s 10-K report I quickly learned a few new things about the company. One thing that stood out to me personally is that “no one presently owns more than four percent of the outstanding common stock.” I also noticed that in the past year, Apollo Shoes went through some legal litigations dealing with infringement of one of their products. Apollo increased their net sales around 73.18%, close to doubling their sales, in the past four years and increased their net income by three and a half times what it was four years ago. This company is growing fast and I think it would do well if it were to be publically traded.

I think one of Apollo’s strengths is definitely consistent growth in sales and the company without a ton of liability. I expect that to continue over the next couple of years. As for weaknesses, I think that most of the controls need to be reevaluated and reinforced on this next audit so as not to incur any problems in the future.

There is a major red flag in the control procedures that needs to be paid close attention to when auditing Apollo Shoes for this coming year. In the 10-K report, I noticed there are only two people in charge of all of the company finances, the treasurer and the controller. The controller has way too many responsibilities, which could pose a potential problem of the controller committing fraud or theft. Make sure that segregation of duties is implemented in Apollo so that this does not occur.

Lastly, I noticed in the inventories section of the 10-K that there was a “Reserve for Inventory Obsolescence”. Could you please elaborate on what all is included in the reserve as far as inventory goes? I was just curious as type of inventory the reserves entails.

Thank you for having all this information sent along to me. I look forward to working on this engagement more in the near future....