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Greenside, an audit firm, has chosen to use audit data analytics (ADA) to assist in the audit of accounts receivable of Fairway Inc., a manufacturer
Greenside, an audit firm, has chosen to use audit data analytics (ADA) to assist in the audit of accounts receivable of Fairway Inc., a manufacturer of golf club covers. In performing this analysis, Birdie, the staff auditor, notes that the average collection period for Fairway's customers is 35 days which approximates its general credit terms of net 30 days and aligns with the industry average of 38 days. However, Birdie identifies a notable item as Fairway's largest customer, Bogieville, has an average collection period of 58 days. In discussion with Fairway's controller, it is noted that due to their relationship with this customer, Bogieville is given net 60-day terms to pay. How should Birdie react to this information? C Birdie should confirm through reviewing contracts, purchase orders, and/or invoices that Bogieville does have net 60-day terms. If this is verified, the average collection period of 58 days is within the credit terms and does not appear to indicate a specific risk of uncollectibility. Birdie should document this false positive, and this notable item should not require further response or investigation. O Birdie should confirm through reviewing contracts, purchase orders, and/or invoices that Bogieville does have net 60-day terms. If this is verified, Birdie should be concerned about Bogieville's ability to pay Fairway its full amounts due in a timely manner. Accordingly, Birdie should consider increasing the risk of material misstatement for the valuation of accounts receivable. O Birdie should communicate this discrepancy to the management of Fairway. As a result of this notable item, Greenside should consider whether a qualified audit report should be issued, noting this exception for accounts receivable. O None of these answer choices are correct.
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