In the process of auditing the accounts receivable of an audit client, HEC Inc. (HEC), Bruce was
Question:
In the process of auditing the accounts receivable of an audit client, HEC Inc. (“HEC”), Bruce was informed by HEC’s management that certain debtors had settled their accounts receivable after the year ended 31 Dec 20x1. Bruce decided to verify HEC’s accounts receivable balances by reviewing the debtors’ settlements after 31 Dec 20x1.
Bruce selected the following samples for testing:
Debtors | Balance as at 31 Dec 20x1 |
Grand Hotel, The | $10,593 |
Happy Eatin' | $ 9,967 |
Secret Garden | $ 6,898 |
Quinn's Fine Dining | $ 2,831 |
Victorine's | $ 1,936 |
Debtors' settlements after 31 Dec 20x1 according to HEC's bank records:
January 20x2 | Amount settled |
Turners' | $ 311 |
The Dell | $ 445 |
The Grand Hotel | $4,569 |
Victorine's | $1,936 |
Happy Eatin' | $4,792 |
Laurels | $ 377 |
February 20x2 | Amount settled |
The Grand Hotel | $6,024 |
Victorine's | $ 938 |
Secret Garden | $3,892 |
Happy Eatin' | $5,175 |
Required
a) Complete the working paper below:
(1) State one assertion being tested (1 mark)
(2) Suggest an audit procedure to test the assertion you stated in (1) above (2 marks)
(3) Fill in the balance per sales ledger for each of the debtors selected (2.5 marks)
(4) Fill in the amount received in Jan from each of the debtors selected (2.5 marks)
(5) Fill in the amount received in Feb from each of the debtors selected (2.5 marks)
(6) State whether balance of each debtors as at 31 Dec 20x1 can be reconciled (2.5 marks)
Debtor | a) (3) Balance per sales ledger | a) (4) Receipts after year-end (in Jan) | a) (5) Receipts after year-end (in Feb) | a) (6) Reconciled? (Yes / No) |
Grand Hotel | ||||
Happy Eatin' | ||||
Secret Garden | ||||
Quinn's Fine Dining | ||||
Victorine's |
b) Based on the test results above, suggest further audit procedures that Bruce should carry out in order to complete the verification of accounts receivable balances as at 31 Dec 20x1 and propose journal adjustment where appropriate.
Business Law Principles for Today's Commercial Environment
ISBN: 978-1305575158
5th edition
Authors: David P. Twomey, Marianne M. Jennings, Stephanie M Greene