Discussion Questions: Apollo Shoes

Audit Program Design Part I
Name
Course
Instructor
Date
Audit Program Design Part IAnderson, Olds, and WatershedCertified Public AccountantMr. Larry Lancaster
Chairman, President and CEO
Apollo Shoes, Inc
Shoetown, ME
August 21, 2014RE: SOX Section 404 Consulting Engagement LetterDear Mr. Lancaster,
The aim of this engagement letter is to highlight on Sarbanes-Oxley Act Section 404 (SOX 404) consulting services to be provided based on our previous meeting and conversation. Anderson, Olds, and Watershed, will represent you in the aforementioned matter. This letter will also highlight on internal controls at Apollo Shoes and how this affects the audit responsibility and internal risks identified. Additionally, it will also touch on our responsibility in detecting and reporting fraud.
Audit procedures- internal control
In carrying out the audit, the audit team will seek to understand the internal control in Apollo Shoes, as this will facilitate audit planning and carrying out audit procedures. We believe that internal control at present is sufficient to enable the team to carry out auditing. However, in case we encounter internal control deficiencies, we will inform the management about these concerns, with audit team members also being briefed on the prevailing circumstances.

We will also seek to understand the design of the internal control system, as this will enable us to use test of controls on transactions. This is an important aspect of the audit meant to understand the validity of transactions, and also identify whether the controls in place are effective in preventing and detecting material errors and frauds. The tests of control also help to show whether they are effective measures to detect whether there is noncompliance that affects materiality of transactions.
Significant regulations and guidelines related to audits of internal control Under SOX 404, before there is auditing of internal controls the management and auditor need to assess adequacy of internal control over financial reporting. Equally, the auditor needs to assess effectiveness of internal controls and how they affect materiality in auditing. Hence, it is necessary to understand the internal control of Apollo Shoes, as this will allow us to evaluate effectiveness of the internal controls. If the auditor determin...