Question
During preliminary conversations with a new staff assistant, you instruct her to send out confirmation requests for both accounts receivable and notes receivable. She asks
During preliminary conversations with a new staff assistant, you instruct her to send out confirmation requests for both accounts receivable and notes receivable. She asks whether the confirmation requests should go to the makers of the notes or to the holders of the notes, in the case of notes that have been discounted. Provide an answer to her question and give reasons for your answer.
Listed below are audit situations that may affect the audit of receivables and revenue.
1. The audit of a machinery manufacturing company that engages in bill and hold transactions.
2. The audit of a software company that engages in agreements with multiple performance obligations that involve a fixed fee for software, updates, and customer support.
3. The audit of a construction company that enters into long-term construction contracts.
4. The audit of a manufacturing company that uses complex sales agreements that allow product returns under certain circumstances.
5. The audit of a software company whose salespeople often modify the terms of sales contracts with various side agreements.
For each circumstance, provide an indication of its audit significance and any special audit procedures that would result.
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