Date: 24 FEB 2021, 00:42:35 +0000 From: "Darlene Wardlaw" Subject: Drafting Financial Statements Well, Arnold spoke with Larry Lancaster about your proposed adjustments in a four-hour meeting. They (Apollo) admitted they missed some adjustments at the end of the year and have (grudgingly) agreed to make all of the entries except the ones related to the Mall-Warts account (i.e., those related to the December sale and any adjustment to the Allowance for Doubtful Accounts). Larry is arguing that even though Mall-Warts is in bankruptcy, they will come out of it and be able to pay Apollo the amounts owed, including the questionable December sale. I disagree. Just a couple more things left to do on our end and then we can wash our hands of the whole thing. I need you to write up a going concern memo and discuss whether we should or shouldn't give Apollo a going concern paragraph (GA-5). I've attached a document that you can use as a template for the going concern memo. a After you're done, I'll incorporate this into our final audit report. APOLLO SHOES, INC. GOING CONCERN MEMO DECEMBER 31, 2020 The decision to issue a going concern disclosure is serious for a variety of reasons. As auditors, we have a responsibility to provide the stakeholders of our clients with reasonable assurance that the assertions made by management in company financial statements are legitimate. In issuing a going concern disclosure, we could lose a client because the company goes out of business, or the client survives and does not go out of business. If the going concern disclosure is not legitimate, we risk additional litigation from corporate shareholders for loss of shareholder value caused in the stock markets when serious doubt about a company's going concern become apparent. If we fail to issue a going concern statement, we risk further litigation for failing to exercise due professional care in the conduct of our audits. In these cases, we risk our firm's reputation as a reliable provider of assurance services. There are a number of factors that we consider including: Mall-Warts is in bankruptcy, and the company lost the biggest customer. Apolly agreed to make adjustments to all of the entries except for allowance for doubtful accounts and sales occurred during the december. If Mall-Warts ended up unable to pay Apollo the amounts owed, this will continue to raise substantial doubt about an entity's ability to continue as a going concern in subsequent periods. . PLEASE INDICATE HERE WHICH FACTORS YOU WOULD CONSIDER SIGNIFICANT WHEN DECIDING WHETHER YOU HAVE SUBSTANTIAL DOUBT ABOUT APOLLO'S ABILITY TO CONTINUE AS A GOING CONCERN. ADDITIONALLY, PLEASE INDICATE WHETHER YOU THINK A GOING CONCERN NEEDS TO BE ISSUED IN THIS CASE