Due to staffing issues, your summer holidays were cut short and you were called into work on the audit file for GlutenTasty Catering Ltd. It is July 15, 2015. You, audit junior, have just been assigned to complete the accounts receivable, revenue, and cash cycle of the audit for the year ended June 30, 2015. The company reports using ASPE and the financial statements are being audited to meet bank loan covenants, one of which pertains to accounts receivable.  Another audit junior has been working on the file due to all audit seniors being on holiday. You are in the process of reviewing the planning section of the working paper file and have determined the following based on the work of the audit junior:

• Audit risk has been assessed at a low; risk for the Sales and Collection cycle has been assessed at low for all objectives.
• A combined approach will be used for the audit.
• Performance materiality has been established at $5,500.

You have received an email from the partner on the engagement advising you on the following information:

• Accounts receivable turnover in the industry has been established at 12; Gross profit margin 75%; and inventory turnover 20.
• All errors found in the previous year by the auditor were corrected before the previous year’s audit was completed.
• The client calculates the Allowance for doubtful accounts using 2.5% of sales.

An aging of accounts receivable outstanding at the end of the year is as follows:

Name of customer	Total	0-30 days	31-60 days	61-90 days	Over 90 days
the crow flies Bakery Ltd.	$6,800			$6,800
Peter Pumpkin Ltd.	12,200				$12,200
Mary-Beth Joe Ltd.	9,400	$5,500	$3,900
Bob Martin Ltd.	3,600		3,600
Seb and Phil’s Ltd.	2,500		2,500
Ubot Taxi Service	1,500	1,500
Frosty Catering Ltd.	4,200	2,100	2,100
Total	$40,200	$9,100	$12,100	$6,800	$12,200

Positive confirmations were sent to Seb and Phil’s Ltd, Ubot Taxi, and Frosty Catering. Because this represented over ten percent of the population the junior staff auditor concluded that the sample size selected was representative. Seb and Phil’s and Ubot Taxi’s confirmations were returned without error.  Frosty Catering’s confirmation has not been returned. There was no other work performed on Sales, Accounts Receivable, or bad debt expense.

A narrative of the system of internal control reveals the following: 

Gillian, the only shareholder of the bakery, extends credit to catering customers after she reviews their financial statements. Approximately 70% of the company’s sales are on credit. As long as the financial statements reveal that the company has positive earnings (profit) Gilian is happy to extend credit to them. Sales invoices are prepared on Sunday as Gilian does not have a lot of time during the week. Most of the invoices are for catering to company functions. Gillian provides a proposal to each of her prospective customers after having met with them and determined the type and amount of service that is required. The proposals are generally on a blank piece of paper that she files away in her briefcase. After the function is over she generally remembers what she had originally quoted and manually prepares the invoice. She has a box of pre-numbered invoices that she uses and generally keeps track of all the numbers on the invoices.  She does not have a lot of time to phone to follow up on outstanding accounts receivable.    Accounting records are updated monthly. They are usually ready for review about 15 days after the month-end.

Select information from the company’s financial statements and the bank reconciliation as follows: 

	2015	2014
Sales	$275,510	$235,220
Cost of goods sold	82,653	65,862
Bank indebtedness (CR balances)	25,000	5,000
Accounts receivable	40,200	19,900
Inventory	65,000	30,000
Bad debt expense	0	150
Cash	4,040	10,560
Allowance for doubtful accounts (CR balances)	5,881	5,881

As an audit junior you are currently looking to be promoted to audit senior. The engagement partner is using your response to this file to help her determine whether or not she thinks you are ready for the promotion. 

Your response should answer the following questions:

1. 1. Identify the steps that should be performed to clear Frosty Catering’s confirmation that has not been returned. 
2. 2. Identify the additional audit procedures that need to be performed on the year-end accounts for:

• Accounts Receivable
• Sales
• Cash

          For each procedure you provide be sure to state: 

             a) The account the procedure is being performed to test.
             b) The relevant audit assertion that your audit procedure will be covering.
             c) Why you think it is important to complete that audit procedure (note the specific risk from the case if there is one).
             d) The actual procedure to be completed. 

      e) For any of the procedures, you mention, complete the procedure if you have the necessary information.