Date: 9 FEB 2012 11:27:00 +0000

From: "Darlene Wardlaw" <DW@aow.cpa>

Subject: Revenue and Expenses

Well, things are coming to a close. The last thing that we have to do is to look at revenues (R-1)
and expenses (X-1).
We can tie down most of the numbers from the work that we have done previously. For
example, we can feel pretty good about the revenue that was confirmed in the accounts
receivable testing (C-series). Use analytic procedures on returns and warranty expense to make
sure that they are reasonable. They should be comparable to last years numbers compared to
sales.
For expenses that we have not examined already:
1.

Use analytic procedures for those that should be comparable to those in

the previous year. For example, for the payroll taxes, compare last years
numbers as a percentage (ratio) of payroll expense and compare to this years
ratio. Cost of Goods Sold should remain relatively constant as a percentage of
sales, unless suppliers costs have gone up or sales prices have changed. The
same should be true for freight and warranty expenses.

2.

For those expenses subject to management discretion, double-check the board

of directors minutes for explanations of fluctuations. For example, I know
that the company severely cut back on Research and Development during the
current year.

3.

Other information:
a. Legal expense was confirmed directly in the attorneys letter.
b. Have they recorded our fee for the 2011 audit?
c. With Apollos extensive use of e-mail now, I think postage and phone
expenses are down from last year.
d. Has interest expense been accrued?