3 answers

John is a junior auditor. He is working on the accounts receivable section of the audit of a contract electrical company with significant accounts receivable. The audit program indicates John should confirm a sample of accounts receivable. John randomly selects 15 accounts and asks the client to prepare the confirmations. Included in this sample are some accounts the client does not want to confirm, so John selects alternative accounts. Once prepared, the client signs the confirmations and mails them with self-addressed envelopes to encourage their customers to reply. As the audit is coming to an end, John realizes there was a low response rate for the accounts receivable confirmations, and he is panicked as he is not sure how he can get any audit evidence for this material balance. For the amounts confirmed, he concluded that the accounts receivable balance is collectible. Which of the following are true for John? (Several choices may be correct.) D. John needs to document why the client refused to confirm certain balances. If the auditor regards management's reasons as unacceptable, then there is a limitation on the scope of the audit that might result in a modified auditor's report. A. Regardless of the response rate, confirmations are required every year. B. John did not need to get the client's permission with respect to the specific accounts to confirm. G. John will have to perform alternative procedures such as vouching cash receipts. F. For the balances confirmed, John has gathered sufficient and appropriate evidence regarding collectability of accounts receivable and therefore valuation. E. To improve the response rate, confirmations can be returned to the client and then passed on to John. C. The confirmations should have been mailed by John, not by the client