ADA as a substantive testAssume that you are auditing a real estate company that owns and rents several apartment buildings. In total, the company owns 22 buildings and has over 1,000 apartments that it rents out on annual leases. You are auditing accounts receivables. From past experience, it has been difficult to get renters to confirm receivables at the end of the year. As an alternative, you choose to use ADA to investigate the relationship between accounts receivable and subsequent cash receipts. Using ADA, you get the following results.

Accounts receivable at year-end subject to ADA$2,634,008

100.0%

Cash collection equals accounts receivable2,122,858

80.6%

Cash collection greater than accounts receivable

0.0%

Cash collection less than accounts receivable418,025

15.9%

No cash collected on December 31, 2022, accounts receivable93,125

3.5%

$2,634,008

100.0%

Required

1. a.What assertion(s) is the auditor investigating?
2. b.How do you interpret the results presented above?
3. c.What tests would you perform next to determine whether any notable items identified have a valid business reason supporting them?