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Engagement Letter Apollo Case Essay

Anderson, Olds and Watershed (AOW) will audit the balance sheet of Apollo Shoes as of December 31, 2011 and the related statements of income, retained earnings and cash flows for the year then ended. Our audit will be conducted in accordance with the Standards of the Public Company Accounting Oversight Board (PCAOB). Our audit will include examining, on a test basis, evidence supporting the amounts and disclosures in financial statements, assessing the accounting principles used ad significant judgments and estimates made by management, as well as evaluating the overall financial statement presentation.

An audit includes obtaining an understanding of internal control sufficient to plan the audit, including making risk assessments, and to determine the nature and extent of audit procedures to be performed. An audit is not designed to provide assurance on internal control or to identify control deficiencies. However, we are responsible for communicating to the Board of Directors of Apollo Shoes significant deficiencies and material weakness in internal control that come to our attention during the course of our audit.

AOW is required to obtain reasonable assurance that the financial statements are free from material misstatements, whether caused by error or fraud. However the audit does not guarantee the accuracy of the financial statements. Even though the audit is properly planned and performed in accordance with the PCAOB standards, an unavoidable risk exists that some material misstatements may not be detected due to inherent limitations of an audit, together with the inherent limitations of internal control. Consequently, our audit is not designed to detect errors or fraud that is immaterial to the financial statements.

At your request, but pending approval by your Board of Directors, we will prepare all required federal tax returns and the state franchise tax returns. We will also provide your staff with a list of schedules needed by our staff during the audit. The delivery dates have been discussed and mutually agreed upon. We understand that your staff will prepare all schedules in the package, all financial statements and notes thereto, and the Form 10-K for our review. The scope of our services however, does not include preparation of any of these statements.

GA-1.2
Fees

Our billing for services set forth in this Engagement Letter, which we have estimated will total $750,000 discussed with you on October 18, 2011.

For the services rendered the due date of the audit report will be February 15, 2012.

Matters that can cause work in excess of fee estimate

We want you to receive the maximum value for our professional services and to perceive that our fees are reasonable and fair. The following matters explain what issues arise most frequently:

Changing requirements

Although we attempt to plan our work to anticipate the requirements that will affect our engagement, three types of situations make this difficult. Sometimes, these new requirements are not communicated in time for us to anticipate their effects in our preliminary planning. Secondly, in spite of our anticipation and planning, the work necessary to comply with new requirements may be underestimated. Finally, in some instances, you may decide that it is advantageous to you to have them applied immediately.

Incorrect accounting applications or error in your records

We generally form our fee estimates on the expectation that your accounting records are in good order so that our work can be completed based upon our normal testing and other procedures. Should we find numerous errors, incomplete records or disorganized bookkeeping methods, we will have to do additional work to determine the necessary corrections have been made and properly reflected in the financial statements.

Lack of audit facilitation or timely preparation

To minimize your costs, we plan the means by which your personnel can facilitate the audit (e.g., what schedule they will prepare, how to prepare them, the supporting documents that need to be provided). We also discuss matters such as availability of your key personnel, deadlines and working conditions. Therefore, if your personnel are unable, for whatever reason, to provide these materials on a timely basis, it may substantially increase the work we must do to complete the engagement within the established deadlines.

Unforeseen events

Even though we communicate frequently with clients and plan our engagement with management and their staff, unforeseen events can occur. Examples include the following: accounting problems, litigation, changes in your business or business environment, contractual or other difficulties with suppliers, third-party service providers, or customers, etc. when those circumstances occur, additional time is needed to provide you with assistance and complete our engagement in accordance with professional standards.

GA-1.3

Authorization

This Engagement Letter sets forth the entire understanding between Apollo Shoes and Anderson, Olds and Watershed regarding the services described therein.

Please confirm your acceptance of this Engagement Letter by signing below and returning one copy to us in the enclosed self-addressed envelope. We appreciate the opportunity to continue to work with Apollo Shoes and ensure you that this engagement will be given our closest attention.


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