Auditing

Jiang Chao, CPA, is the auditor of Ellice Pearls. Jiang is considering the audit work to be performed in the accounts payable area for the current year engagement. After obtaining an understanding of Ellices Pearls controls, Jiang assessed control risk at the maximum.

Jiang decided to confirm supplier balances and mailed confirmation requests to 100 of Raleighs 1000 suppliers. The selected suppliers were based on Maincins sample that was designed to select accounts with large dollar balances.

Required:

a) Explain why the use of large dollar balances as the basis for selecting accounts payable for confirmation might not be the most effective approach for the audit of accounts payable. (6 point)

b) Provide one (1) audit procedure that would be more effective than selecting and confirming large supplier balances for the audit of accounts payable. Explain the purpose of the procedure and why it is more effective (4 point).