Date Mon, 21 OCT 2005 064235 +0000

							Date: Mon, 29 OCT 2007 06:42:35 +0000
From: "Darlene Wardlaw" <DW@aow.cpa>
Subject: Upcoming Apollo Shoes Engagement

Apollo denied our request to speak with the predecessor auditors because of “litigation concerns.”
I’ve looked at the 8-K filed by Apollo and the auditors referenced in the 10-K. I didn’t attach a
copy because it didn’t say much, just something about “incongruent goals,” blah, blah, blah.
Against my advice, Arnold decided to accept the engagement anyway. Keep your eyes open!

The good news is that the predecessor auditors, Smith and Smith, CPAs, have a good reputation,
so you can use last year’s audited numbers from the 10-K. The bad news is that we don’t have
access to prior year working papers. You’ll need to come up with programs for the
substantive audit procedures for each of the functional balance sheet areas (indicated with
an asterisk (*) below). You can download copies of the audit programs from AuditNet
(www.auditnet.org) under “Auditors Sharing Audit Programs” or get them from an old auditing
textbook. My preference is to place the audit programs at the beginning of each section. Label
the sections as follows:

GA series (GA-1, GA-2, etc.)    General and Administrative (Planning)
ICC series                      Revenue/Collection Cycle Internal Control Evaluation
ICD series                      Purchasing/Disbursements Internal Control Evaluation
ICP series                      Payroll Internal Control Evaluation
A series                        Trial Balance/Financial Statements/Adjustments/Footnotes
B series*                       Cash Substantive Workpapers
C series*                       Accounts Receivable Substantive Workpapers
D series*                       Inventory Substantive Workpapers
E series*                       Prepaids Substantive Workpapers
F series*                       Property, Plant and Equipment Substantive Workpapers
I series*                       Other Assets Substantive Workpapers
L series*                       Current Liabilities Substantive Workpapers
N series*                       Notes Payable Substantive Workpapers
Q series*                       Stockholders’ Equity Substantive Workpapers
R series*                       Revenue Substantive Workpapers
X series*                       Expenses Substantive Workpapers

Because we are so understaffed during busy season, you are going to have to perform the bulk of
the audit yourself. I was only able to get you a spring intern (Bradley Crumpler) from Caledonia
State University (heck, I didn’t even know they had an accounting program!). He is the only
unassigned person in the office right now. Because I am unsure of his training, I suggest that you
only use him for “grunt work.” Also, I checked into the background and experience of Karina
Ramirez, Apollo’s Internal Auditor. Apparently, she was an auditor with a Big 4 firm for 8 years
before coming to Apollo and has served on the state CPA society’s ethics committee. I also went
through her workpapers; they appear to be top-notch. Lastly, she reports directly to the Audit
Committee, so we can rely on her to be objective. I think we can rely on her work during our
engagement.

DW

P.S. Thanks for drafting the engagement letter. I only had to make a couple of changes before
Arnold signed it.