Audit Design Part I
ACC/546
August 11, 2014
Allan Foster
Audit Design Part I
ANDERSON, OLDS, and WATERSHED, CPAs
Portland, Maine 04101

December 15, 2007

Mr. Larry Lancaster, President
Apollo Shoes
3671 New Age Drive
Portland, Maine 04101 Dear Mr. Lancaster:
This letter is to confirm the engagement of Anderson, Olds, and Watershed’s services to provide an audit of the financial statements by examining the internal controls. Anderson, Olds, and Watershed (AOW) will consult with Apollo Shoes of the 2002 Sarbanes-Oxley (SOX) Act Section 404 requirements of internal controls and test the internal controls for misstatements and/or material weaknesses. SOX states that it is management’s responsibility to establish adequate internal controls, and our purpose is to provide an opinion and make recommendations to Apollo Shoes, Inc. at the end of the engagement. As part of the engagement, AOW will also prepare a 10K-filing and state and federal taxes.
This engagement letter’s purpose is to provide the services we will cover and define terms for Apollo Shoes, Inc., and it will focus to provide information on the following topics:
1.) Significant regulations and guidelines related to audits of internal control

2.) Internal control risks identified within Apollo Shoes

3.) Relationship between internal controls and the audit process

4.) A brief synopsis of your responsibility in detecting and reporting fraud

There are many regulations and guidelines for AOW to follow when conducting our services of internal control audits. Since SOX requires to establish a set of internal controls that are efficient, the auditors are to evaluate and test these controls using certain methods. SOX also requires Apollo Shoes, Inc. to report the effectiveness of their controls publically. The method AOW uses is the Committee of Sponsoring Organizations (COSO) – Internal Control/Integrated Framework. This guideline has five main components that will help us evaluate Apollo Shoes, Inc.. These components are control environment, risk assessment, control activities, information and communication, and monitoring. One of the most important parts of our audit is to gain an in-depth understanding of your internal controls, so we may understand how the organization works.
Internal control risks are always present, but may never surface. The audit of internal controls cannot guarantee that material misstatements will never appear, but it is AOW’s objective to see that risks can be adverted and advise Apollo Shoes, Inc. of any controls that could lead to material misstatements that affect the financial statements integrity.
The relationship between internal controls and the audit process is crucial in understanding. Audits performed on financial statements must have a support of knowing that material misstatements do not exist. Internal controls play an important role since they are what allow or disallow certain transactions. If an internal control is not set in place, the financial statements could be over or under-stated depending on the transaction or process. This is why understanding the internal control system/process is important to AOW. We can also assess the risks associated with certain transaction that could take place which would affect the financial statements as well.
We, AOW, have a duty to you, Apollo Shoes Inc. to prevent and detect fraud that is within your business. After we have assessed the risks of fraud, we