Below is a transcript of a May 15 Zoom videoconference call between Joe Anthony, the partner, and Leslie Nagan, the manager
JA: Leslie, I can’t hear you. Leslie, I think that you are on mute. Scroll down, look down Leslie, there, there, click the unmute button.
LN: Joe, can you hear, can you hear me now? Joe? What’s going on? Why are your eyes so red? Were you crying?
JA: I can hear you now Leslie. My eyes. Yes, I am sorry. Since this COVID-19 virus started, it has been a really rough and emotional time for me. I just finished a video conference with Avis, (Hillsburg’s CFO).
LN: And?
JA: What a disaster. Avis said that the COVID-19 restrictions are impacting Hillsburg’s customers worse than originally anticipated. She thinks that even once the restrictions are lifted, some of the independent hardware stores won’t ever reopen—many did not have much of an online presence, and with the reduced customer traffic and the health and safety measures, it has been difficult adjustment. For a lot of people, everything that they worked for their entire lives just vanished.
LN: I know.
JA: On top of that, three of the store owners, who Avis knows well, are in hospital in intensive care. They all went to the same funeral and got the coronavirus. One is on a ventilator and will probably die. The other two, it is hard to tell. Honestly, I am just emotionally drained.
LN: Joe, I know. You are not alone; I think everyone feels the same.
JA: Hillsburg’s board of directors had another emergency meeting last month to update its COVID-19 response plan. As part of this plan, Hillsburg will be renegotiating its sales agreements with every customer. They are trying to help the small independent stores survive. They approved an extension to their payment terms and won’t be collecting any outstanding balances at least until the COVID-19 restrictions are lifted. Even after that, the Board may further extend this policy.
LN: Anything else?
JA: Rick, (Hillsburg’s CEO) and his VPs and the whole sales team, are on the phone with customers trying to help and renegotiate the terms of each sale agreement. Avis mentioned that Hillsburg plans to take back all inventory it sold to stores that they think won’t ever reopen again.
LN: How many stores? At what price will they take back the inventory?
JA: I am not sure. That is being finalized as we speak. Hillsburg’s sales team is negotiating with every store owner individually. Avis said that all the negotiations should be completed by the end of next week. So, once that’s done, we will have a better idea.
LN: Anything else?
JA: Yes, Avis also mentioned that to get the sales going again after the COVID-19 restrictions are lifted, Rick is adding a temporary new clause to all the sale agreements that allows Hillsburg’s customers not to pay for their orders until they sell the inventory.
LN: Oh, wow, that’s a big change.
JA: It will be a lot of work trying to figure out what are the new terms of each sales agreement when the renegotiations are done. Everything is happening so fast. Everyone’s situation is unique, every negotiation will probably be slightly different. On top of that, each contract is being renegotiated by a different sales person. Who knows what side agreements they come up with?
LN: Yes, I know. But don’t worry Joe. We have a strong team. We will figure it out.
JA: I know. Thanks Leslie. On a positive note, my wife gave me a haircut.
LN: I noticed. I thought that you were crying because you saw how you look on the computer screen. Haha . . . just kidding.
JA: Haha . . . you got me there.

REQUIRED
1. Evaluate the impact of Hillsburg’s response to COVID-19 on the risk of material misstatement in the accounts receivable balance and on revenue. Link each risk to an applicable assertion.
2. Suggest substantive procedures that the audit team could conduct to respond to the risks that you identified.