Your firm is the external auditor of Southwood Trading Ltd and you are auditing the financial statements for the year ended 30 June 2015. Southwood Trading has a turnover of \($25\) million and trade debtors at 30 June 2015 were \($5.2\) million.

The engagement partner has asked you to consider the relative reliability of evidence from third parties and certain matters relating to an accounts receivable circularization.

In relation to requirement (b)(ii) below, the partner has explained that judgement would be used to select debtors that appear doubtful and those that would not be selected using the dollar unit sampling technique described in requirement (b)(i).

Required

a. Consider the relative reliability of the following types of evidence from third parties:

i. replies to an accounts receivable circularization to confirm trade debtors 

ii. suppliers' statements to confirm purchases ledger balances.

b. In relation to selecting debtors for circularization:

i. explain the use of monetary unit sampling in selecting debtors to circularize 

ii. consider the criteria you would use to select individual debtors for circularization using judgement 

iii. discuss the advantages and disadvantages of using monetary unit sampling (in (b) (i)) as compared with judgement (in (b)(ii)) to select the debtors to circularize. Your answer should consider why it is undesirable to use only judgement to select the debtors for circularization.

c. Describe the audit work you would carry out in following up the responses to an accounts receivable circularization where:

i. the debtor disputes the balance and provides a different balance 

ii. no reply to the circularization has been received from the debtor, and all attempts at obtaining a reply have failed.