Denise Herron is a manager at Herron & Shough, LLP, a regional audit firm in Springfield, Illinois. Herron is preparing for a meeting with Alan Morse, the controller of ABC Electronics, a publicly held company in Springfield. The meeting concerns a variety of questions raised by the controller about the audit as follows.

A) Why wasnt $1 million revenue recorded in 2016 for a December 31, 2016, transaction whereby ABC agreed to sell $1 million of software to XYZ Electronics in return for a stock issuance of that company? XYZ, in return, agreed to sell $1 million of similar software to ABC on January 5, 2017, in return for a stock issuance from ABC.

B) Why does the firm need to do additional testing of the collectability of receivables beyond that included in the original audit plan?