You were in the final stages of your audit of the financial statements of Ozine Corporation for the year ended December 31, 2025, when you were consulted by the corporation’s president, who believes there is no point in your examining the 2026 voucher register and testing data in support of 2026 entries. He stated that (a) bills pertaining to 2025 that were received too late to be included in the December voucher register were recorded as of the year-end by the corporation by journal entry, (b) the internal auditor made tests after the year-end, and (c) he would furnish you with a letter certifying that there were no unrecorded liabilities. 

Required 

a. Should a CPA’s search for unrecorded liabilities be affected by the fact that the client made a journal entry to record 2025 bills that were received late? Explain. 

b. Should a CPA’s search for unrecorded liabilities be affected by the fact that a letter is obtained in which a responsible management official certifies that to the best of his knowledge all liabilities have been recorded? Explain. 

c. Should a CPA’s search for unrecorded liabilities be eliminated or reduced because of the internal audit tests? Explain. 

d. Assume that the corporation, which handled some government contracts, had no internal auditor but that an auditor for a federal agency spent three weeks auditing the records and was just completing his work at this time. How would the CPA’s unrecorded liability search be affected by the work of the auditor for a federal agency? 

e. What sources, in addition to the 2026 voucher register, should the CPA consider to locate possible unrecorded liabilities?