I need a help. Can you please help me to prepare a subsequent events memo based on Apollo shoes case (2/11 Wardlaw memo attached for your reference)?
Date: 11 FEB 2012 11:27:00 +0000 From: "Darlene Wardlaw"
Subject: Subsequent Events Well this audit turned out to be a little more interesting than we initially expected, didn't it? Hope you didn't run into too much trouble when you crossed the picket lines. I've attached the last set of minutes from Apollo's Board of Directors. You need to prepare a memo (to be placed in the A series with the financial statements) on these subsequent events and how you believe we should address them. Include the following in your memo: 1. An explanation of the reasons subsequent events must be disclosed in the financial statements even though they occurred after the balance sheet date. Include in your explanation the difference between the disclosure of Type I and Type II subsequent events. 2. Give the audit procedures that, in addition to verbal inquiry and the client's representation letter, should be performed as part of the subsequent event audit work. 3. Discuss the accounting and/or disclosure, if any, you would recommend for the subsequent events discussed in the minutes, stating all details that should be disclosed. I've also attached the letter that we received from Apollo's attorney. DW MEETING HELD FEBRUARY 9, 2012 Larry Lancaster, chairman of the board, presided over the second meeting of the year, beginning at 3 P.M. All members were present: Larry Lancaster Josephine Mandeville** Ivan Gorr* Harry Baker* Fritz Brenner** Theodore Horstmann** Eric Unum * Outside director ** Outside director and member of the audit committee. The minutes of the January 3 meeting were reviewed and approved. Saul Panzer and King Stout, Apollo's top 2 salesmen, presented a proposal for building and marketing custommade PrivyShoes, a novelty item for water skiers. Since a plan to build and market similar shoes for marathon runners had not been successful, the board tabled the proposal for the time being. Sue Fultz reported that depositions were ongoing in the litigation action discussed at the January 3 meeting. No further information was available. Eric Unum reported on MallWarts bankruptcy proceedings. Sales have decreased significantly as a result of the loss of Apollo's largest customer. Plans were discussed to increase sales to Apollo's other customers. In the meantime, as a result of reduced sales, operations activity was curtailed in midJanuary and some workers were laid off. On February 8, all the remaining workers went on strike. To date the strike is unsettled. Meeting ended 7:30 P.M. /s/ Jeff Chesnut, Secretary Perley Stebbins, Esquire Lawyers \"R\" Us, LLC Augusta Bangor Jay Shoetown February 11, 2012 Anderson, Olds, and Watershed, CPAs, LLC Shoetown, ME 00001 Dear Sir or Madam: I write to respond to your letter of audit inquiry regarding Apollo Shoes, Inc. With respect to this client, my firm was engaged to litigate three cases. Two cases were ultimately dismissed during 2011, resulting in no legal liability. While the remaining case is in the preliminary deposition stage, I will try to provide details of the litigation below: On January 2, 2012, a class action suit alleging gross negligence and violation of implied warranty of merchantability was brought against Apollo for $12,000,000. The action stems from the use of one of the Company's products (the Spotlight) in an aquatic environment, specifically the 1st Annual Swiss Aquatic Games held in January 2011. During the athletic competition, immersion of the company's products in water allegedly caused severe electrical shock to the wearer(s), purportedly resulting in numbness in the extremities and loss of all leg hair. The action involves unique characteristics wherein authoritative legal precedents bearing directly on the plaintiff's claims do not seem to exist. While we believe the plaintiff will have serious problems establishing Apollo's liability, if the plaintiff is successful, the damages awarded may be substantial. While the company intends to vigorously defend itself in this action, it is reasonably possible that the loss could reach $10,000,000 after legal fees are considered. Our billed legal fees in 2011 amounted to $4,902,224.45, of which $3,000,000 was already paid as December 31, 2011. Therefore $1,902,224.45 of our billed amount remains unpaid at December 31, 2011. Also, we have an additional $3,000,000 in services which we performed prior to December 31, 2011 but have not yet billed. We intend to bill these services within the next week. Please feel free to contact me should you have any additional questions on these matters. Sincerely, Perley Stebbins Perley Stebbins, Es
