You are responsible for designing the audit of notes receivable for Hickory Appliance Retailers, which sells appliances and electronics to consumers for their homes or small businesses. Hickory Appliance has eight store locations in different cities located in the upper Midwestern part of the United States. One of Hickory’s unique competitive advantages has been its ability to offer more attractive credit terms for appliance purchases for their customers relative to traditional credit cards. Thus, most of their sales involve Hickory-financed purchases by their customers. As part of obtaining an understanding of the client’s business and industry, you learned that some of the stores are located in cities that have recently experienced higher rates of unemployment.

(a) Required Which notes receivable balance-related audit objective(s) might have a high risk of material misstatement?

(b) What risks, if any, would you consider to be a significant risk related to notes receivable?

(c) How might the number of days receivables outstanding in the current year compare to prior years’? (d) Do you plan to send notes receivable confirmations in the current year? Why or why not?

(d) To what extent will confirmations of notes receivable help you assess collectability of the accounts as of year-end?