Apollo Engagement Letter University of Phoenix Anderson, Old, and Watershed, CPA’s, LLC Shoetown, ME 00001 October 26, 2007 Mr. Larry Lancaster President and Chairman Apollo Shoes, Inc. Dear Mr. Lancaster: This letter is to confirm our understanding of the terms and objectives of our engagement and the nature and limitations of the services we will provide. We will audit the consolidated balance sheet of Apollo shoes as of December 31, 2008, and the related consolidated statements of operations, retained earnings (deficit), and cash flows for the year ended.
The purpose of the audit is to express an opinion about whether your consolidated financial statements are fairly presented, in all material respects, in conformity with accounting principals generally accepted accounting principals. This audit procedure will include tests of documentary evidence supporting the transactions recorded in the accounts, test of physical existence of inventories, and direct confirmation of receivables and payables and certain other assets and liabilities.
Because an audit is designed to provide reasonable, but not absolute, assurance and because we will not perform a detailed examination for all transactions, there is a risk that material errors, fraud or illegal acts, may exist and not be detected by us. Our audit will include obtaining an understanding of your internal controls sufficient to plan the audit and to determine the nature, timing and extent of audit procedures to be performed. We have no responsibility to identify and communicate significant deficiencies or material weaknesses in your internal controls as part of this engagement.
However, during the audit, if we become aware of such reportable conditions, we will communicate them to you. You are responsible for maintaining an adequate and efficient accounting system that will help assure the preparation for proper financial statements. You are responsible for making all financial records information available to us and for the accuracy and completeness of that information. As part of our engagement, we may propose standard, adjusting, or correcting journal entries to your financial statements.
You are responsible for reviewing the entries and understating the nature of any proposed entries and the impact they have on the financial statement. In order for us to complete this engagement, you are responsible to provide the information necessary in a timely basis so we conclude the audit in time. As part of our engagement for the year ending December 31, 2008, we will review the form 10-K and prepare the federal and state franchise tax return for Apollo Shoes, Inc. Our fees for the engagement are not contingent on the results of our services. The fees will be based on our standard hourly rates.
We estimate that our fee for these services will be approximately 750,000. However, in the event that we encounter unusual circumstances that would require us to expand the scope of the engagement, and if we anticipate our fees exceeding the amount stated, we will adjust the estimate, and obtain your prior approval before continuing with the engagement. If, you agreed to the terms and conditions of this engagement, please sign this letter in the space provided and return the original signed letter to us. Keep a copy for your records. We appreciate the opportunity to serve you. Yours truly: Arnold Anderson Partner Accepted: By: Date:
Timeframes for the audit. Subject to any unexpected or unplanned delays (on your part or ours), we will endeavor to meet the following timelines: Audit Commencement: December 24, 2007 Issue of final draft audit report for consideration: March 8, 2008 Information required commencing the audit. Last year’s profit and loss statement Engagement Checklist Yes No Is there a copy of last’s year audit files available to be examined? Has internal control been adequately understood? Has permanent files been updated? References Auditing and Assurance Services (11th ed). Arens, Elder, Beasley. Prentice Hall (2006)