(a) Explain how you would select the sample of debtors for confirmation.
(b) Only one in four of the debtors’ confirmations are returned. Explain the additional audit procedures you could carry out in order to provide sufficient appropriate audit evidence on the trade receivables balance for the existence assertion.

Chan and Partners Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2017 year, Fellowes and Associates gained a new client, Medical Services Holdings Group (MSHG), which owns 100 per cent of the following entities:

• Shady Oaks Hospital, a private hospital group

• Gardens Nursing Home Pty Ltd, a private nursing home

• Total Cancer Specialists Limited (TCSL), a private oncology clinic that specialises in the treatment of cancer. Year-end for all MSHG entities is 30 June. You are performing the audit field work for the 2017 year for Shady Oaks Hospital. The field work must be completed in time for the audit report to be signed on 21 August 2017. You have been asked to circulate the debtors’ confirmations. Shady Oaks Hospital’s trade receivables arise from the use of hospital facilities (including the provision of nurses, anaesthetists, operating theatres and supplies) by medical practitioners in private practice. The trade receivables balance was $3 974 569 as at 30 June 2017 and was considered material.

The hospital’s payment terms are 14 days from the date of the invoice. Sixty per cent of the balance is represented by invoices outstanding from five different medical practitioners. The remaining 40 per cent is made up of numerous smaller amounts, most of which have been outstanding for more than 60 days. Any allowance for doubtful debts is taken directly against the trade receivables account and not shown separately.