Accounts receivable can be the largest asset that a company has, so auditors may spend a considerable amount of time gaining assurance that the amount of the stated asset is reasonable.

The first step in auditing a companys accounts receivable procedure is reviewing the originating information. Auditors pull a sample of clients or customers from the companys account receivables ledger and review the information. This is an important step because companies can easily create fraudulent accounting balances by simply adding fake clients and receivables to boost its balance sheet accounts. Reviewing the original sales information will prove to the auditors that a sale on account occurred and resulted in the accounts receivable balance.

Auditors will interview employees who handle customer accounts to determine how well the company operates. Accounting employees may math check the receivables information to ensure that sufficient backup is included with the customers paperwork. Interviewing employees can also help auditors determine what the accounts receivable process is and how well the process is followed. A lack of employee training may indicate the potential for errors to occur in the accounts receivable process.

Another important audit procedure is contacting the companys major clients and requesting the client to verify their accounts payable amounts owed to the company. Auditors will take this external information and match it to the companys internal information. Variations in the dollar amounts may result in further testing. Auditors will usually review information for several months of the accounts receivable account to determine how well the company operates over an extended period of time.

What is an Accounts Receivable Confirmation? How and why are they utilized by auditors? Why is this form of information gathering considered to be of higher quality than information an auditor gathers from internal company records?

For this this case assignment please design a confirmation letter that you would send to your client