1) (9 marks) Following are three different situations with respect to the audit of accounts receivable and sales. For each, specify the evidence mix that you would use (tests of control, substantive tests, type of confirmation/timing), and explain why.

A) The client is in a volatile industry, selling products that can quickly become obsolete. Total accounts receivable is $65 million with a bad debt allowance of $7 million. The company has recently laid off three accounting staff to save money.

B) A small company has 45 different customers with balances ranging from $500 to $25 000 per customer. There is one accountant on staff and a professional accountant comes in once per week for three hours to review the staff accountant's work and prepare journal entries. Bad debts are rare, as the owner is actively involved in accounts receivable collection.