63.As part of the fieldwork of an audit engagement, the senior on the audit obtained and documented an understanding of the company’s internal control relating to accounts receivable and assessed control risk related to accounts receivable at the maximum level. Susan, the staff person assigned to the engagement, requested and obtained from the company an aged accounts receivable schedule listing the total amount owed by each customer as of December 31, year 2, and sent positive confirmation requests to a sample of the company customers. Review Susan’s comments on each of the following confirmations and determine the best conclusion and/or follow-up procedures for each item.
Confirmation letters follow. Assume that all confirmations received have been appropriately signed, unless otherwise noted. For each customer in the table below, review the relevant confirmation letter and the comments at the bottom of each. Then double-click on the shaded space in the table, and select the procedure that should be followed to clear the exception, if one exists. Choose only one procedure per confirmation. A procedure may be used once, more than once, or not at all.
Selectionlist
A. Send a second request for confirmation to the customer.
B. Exception noted; propose adjustment and request that the controller post it to the accounting records.
C. Verify by examining subsequent cash collections and/or shipping documents.
D. Verify that additional invoices noted on confirmation pertain to the subsequent year.
E. Not an exception, no further audit work deemed necessary.
F. Not an exception, no adjustment necessary. Determine the sufficiency of allowance for doubtful accounts.
Confirmation Letters
February 1, year 3
Performance Marine Sales, Inc.
1284 River Road
Louisville, Kentucky 40059
Re: Balance at December 31, year 2 – $267,000
Dear Sirs:
As of December 31, year 2, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Susan’snotetofile:
February 1, year 3
West Coast Ski Center, Inc.
163 Tide Avenue
Monterey, California 93940
Re: Balance at December 31, year 2 – $414,000
Dear Sirs:
As of December 31, year 2, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Susan’snotetofile:
February 1, year 3
Fish & Ski World, Inc.
5660 Ocean Blvd.
Port Arkansas, Texas 78373
Re: Balance at December 31, year 2 – $72,000
Dear Sirs:
As of December 31, year 2, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Susan’snotetofile:
February 1, year 3
NC Boating Center, Inc.
110 Windward Blvd.
Tierra Verde, Florida 33715
Re: Balance at December 31, year 2 – $239,000
Dear Sirs:
As of December 31, year 2, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Susan’snotetofile:
February 1, year 3
Desert Boats
2135 W. Lane Ave.
Tempe, Arizona 85287
Re: Balance at December 31, year 2 – $60,000
Dear Sirs:
As of December 31, year 2, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Susan’snotetofile:
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