Financial Statement Fraud Schemes 1

Financial Statement Fraud Schemes on Apollo Shoes Week Five Ardyth Smith ACC 556 December 12, 2011 Professor Jennifer S. Brown

Financial Statement Fraud Schemes 2 While evaluating Apollo Shoes, there are some areas of concern that are potential fraud schemes. The fraud can lead to the entire collapse/demise of the company if not corrected. These will also affect the share value and investor confidence. An overview of the process of investigation along with recommendations for the company. As with any company, revenue recognition is an important part of operations of a Apollo Shoes. As stated in GAAP standards, revenue generated must be realistic and recognizable. Revenue is recognized when the sale is complete. The sale is approved or paid for and the product is handed to the customer or mailed to the desired location. When reviewing the books for Apollo Shoes, the numbers are inconsistent with the accounts receivable. Confirmation received from customers were in line with the account balances. This raised a flag of concern for revenues being misstated. The difference doesn't appear to make a considerable increase in cash flow, but the issue needs to be addressed and corrected before the difference is larger. This can also be an indication of revenue misstatements. When there are discrepancies in the financial statements obtained from the company and the financial institution, further investigation must be performed. Fixed Assets There are some common forms of fraud in relation to fixed assets, concealment, misuse, and improper classification. All of these have an impact on the book value for the organization and the equity for the shareholders. The organization is responsible to record assets in the correct account for tracking a valuation. The fixed assets can also be traced from the beginning of the year to the end for verification of existence and/or write off of assets. The capitalization policy of assets can also be evaluated for accuracy and possible changes that need to be made. The damaged the Apollo

Financial Statement Fraud Schemes 3 Shoes building sustained from the hurricane were funded and capitalized. The same charges could also have been applied for routine maintenance, which would show the expense twice. Apollo shoes was affected by a recent hurricane and the potential of charges being posted in renovation and routine maintenance. The invoices for system analysis consulting with Professor Josephine Mandeville of $200,000 needs to be examined and clarified. This seems to be high for evaluation and should not be included in the capitalization policy if it occurred after the conversion date. This will impact the expenses of the company in the short term and the long term. Depreciation schedules need to be evaluated in regard to the life of the equipment and the type of depreciation utilized. The assets need to be monitored for compliance with GAAP. Assets need to be re-evaluated for value and life expectancy for depreciation and book values. Inventory Items that stand out are the standing inventory that is of uncommon sizes and longstanding boxes which were on pallets. The obsolescence reserve seems to be almost the total inventory for the Siren shoes. The men's spotlight size 23 shoes in the warehouse need to be eliminated from the inventory and destroyed or removed. The tracking process for inventory needs to be counted by employees that are not involved with ordering and recording the items on the books. Better use of the inventory tracking system needs to be pursued for future training and or implementation for employees. Standing inventory needs to be evaluated and a determination for future benefit or elimination needs to be determined. The warehouse needs to ensure that all items are verified and recorded regularly. The sales, shipping and recording process needs to be followed and checked by management. Conflict of Interest

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With the purchase of the operating facility and equipment and the lease of a second facility from two previous directors, the relationship and value of the items need to be investigated. The value of the building and equipment of $823,906 could be out of the ordinary. The company In conclusion, financial statement fraud compromises the credibility of the company if they are not corrected. It is critical for Apollo Shoes to portray an image of stability, honesty and integrity to grow into a long-term operation. Fraudulent activity will also affect potential investors and profits of the company. These are steps to help expose possible fraudulent activities and to help prevent future issues.

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References Louwers, T. J., & Reynolds, J. K. (2007). APOLLO SHOES, INC. An Audit Case to Accompany. Louwers, T., Ramsay, R., Sinason, D., & Strawser, J. (2007). Auditing & assurance services: A look beneath the surface (2nd ed.). New York: McGraw-Hill/Irwin. Wells, J. (2005). Principles of fraud examination. Hoboken, NJ: Wiley.