Accounts Receivable, Liabilities and Loss Contingencies

There are 3 separate sections to Part 4: section a, section b, and section c.

Section a: You have been hired by a small privately held firm to analyze its accounts receivable department and assess how its internal accounting controls could be improved. The company operates a table manufacturing facility. The owner is a hands on individual and is at the business every day. However, the owner has no involvement in the accounting function. The only employee in accounts receivable is Cindy, an employee of 10 years. Cindy opens all cash receipts, credits the clients accounts and deposits the money at the bank. What internal control related risks does this company face? What changes, if any, should be made?

Required: Section a: Answer the two questions above; be sure to explain your reasoning.

Section b: You are auditing an unprofitable company that has been undergoing a significant restructuring. You believe the companys recorded restructuring reserve (a liability) of $30 million is overstated by at least $7 million. Why would the company be interested in overstating its restructuring reserve liability and thereby increasing its net loss?

Required: Section b: Answer the question asked above; be sure to explain your reasoning.

Section c: You are auditing a company and have satisfactorily completed your examination of accounts payable and other liabilities. You now intend to determine whether there are any loss contingencies arising from litigation, claims, or assessments.

Required: Section c: What audit procedures should you follow with respect to the existence of loss contingencies arising from litigation, claims, and assessments? (There is no need to discuss reporting requirements).