In this mini-case you will complete the test of details on accounts receivable for the 2016 audit of EarthWear Clothiers, Inc. The principal test of detail involves sending "confirmations" or letters to customers so that they can confirm that they owe EarthWear the reported balance. All six customer accounts receivable balances exceeding $100,000 were targeted for testing. These six balances, aggregated total of $921,000, were confirmed without exceptions. The remaining accounts are of similar size and total $7,722,000 and will be tested via audit sampling. Inputs for the sample size determination were, Desired Confidence Level?95%, Tolerable Misstatement?$600,000, and Expected Misstatement?$154,440. Based on these inputs, 67 accounts receivable balances were selected for confirmation requests. The first 63 accounts receivable confirmations have already been reviewed by other staff members and no errors have been found. The remaining four confirmations require your review as they were returned with notes from customers indicating a potential misstatement. Please note that legitimate timing differences do not result in misstatements.

1. 1. Review the four confirmation responses in the PDF file downloaded from the mini-case website (a link is also provided below). Enter the information into Work Paper 10-1. For each confirmation response, please determine whether the difference noted by the customer represents a misstatement or a timing difference. After reviewing all four confirmations, please complete both the nonstatistical and the statistical evaluation options outlined on Work Paper 10-1unless your instructor tells you otherwise. Chapter 9 of the text provides guidance on both nonstatistical and statistical evaluation.Please refer to Chapter 9 for a description of how to calculate a sample size and evaluate errors using IDEA. Please be careful as you enter your results from IDEA to the work paper as the items may not be listed in the same order.

2. After completing both the nonstatistical and statistical evaluation methods, please briefly discuss how the results compare to each other in the space provided on Work Paper 10-1. Are the monetary amounts and overall conclusions similar?

Red Star Health Group 3520 Lone Star DR Dallas TX 75212-6301 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors: Willis & Adams P.O. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. Your prompt attention to this request will be appreciated. An envelope is enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Carol McKay Carol McKay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $12,365 as of December 31, 2016, is correct except as noted below: Our accounting records show a balance of $12,356. CUSTOMER NAME Date 1/21/2017 By David Allen Print Name: Position: David Allen Accounts Payable Clerk P.O. Box 787 - Boise, Idaho 83845 E A R T HW E A R C L O T H I E R S I N C - I NT ER OF F I C E M E M OR A ND U M TO: WILLIS & ADAMS, CPAS FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 652-54310 DATE: 1/24/2017 CC: RED STAR HEALTH GROUP Upon review of our documents and in consultation with the customer, we have determined the customer's records were correct. The correct balance is $12,356 as indicated by the customer on the confirmation request. EarthWear Clothiers P.O. Box 787 Phone: (208) 555-0190 Boise, Idaho 83845 Fax: (208) 555-0191 E-mail: accounts@ewclothiers.com Statement Statement #: None (Confirmation Request) Bill To: Accounts Payable Date: December 31, 2016 Red Star Health Group Customer ID: 652-54310 3520 Lone Star Dr. Dallas TX 75212-6301 Date Type Invoice # 12/23/2016 Embroidered Goods 12-6354903 Description Amount Payment Embroidered shirts (qty. 400) $ 12,365.00 $ Total Reminder: Please include the invoice number(s) on your check. Terms: Balance due in 30 days. REMITTANCE Customer Name: Red Star Health Group Customer ID: 652-54310 Statement #: None (Confirmation Request) Date: December 31, 2016 Amount Due: $12,365.00 Amount Enclosed: Balance - $ 12,365.00 $ 12,365.00 Museum of Flight 308 Air St. Dayton OH 45404-1808 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors: Willis & Adams P.O. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. Your prompt attention to this request will be appreciated. An envelope is enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Carol McKay Carol McKay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $14,235 as of December 31, 2016, is correct except as noted below: We show no balance due at the end of last year. CUSTOMER NAME Date 1/17/2017 By Alexis Oliver Print Name: Position: Alexis Oliver Gift Shop Store Manager P.O. Box 787 - Boise, Idaho 83845 E A R T HW E A R C L O T HI E R S I N C - I NT ER OF F I C E M E M OR A ND U M TO: WILLIS & ADAMS, CPAS FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 210-38725 DATE: 1/21/2017 CC: MUSEUM OF FLIGHT The customer's order was shipped FOB shipping point on December 31, 2016. The freight company confirmed their order was delivered January 2, 2017. The balance shown on the confirmation request of $14,235 is correct. W&A Staff Auditor Note: Examined shipping document and agree with EarthWear assessment. DLJ 1/21/2017 EarthWear Clothiers Phone: (208) 555-0190 P.O. Box 787 Fax: (208) 555-0191 Boise, Idaho 83845 E-mail: accounts@ewclothiers.com Statement Bill To: Accounts Payable Statement #: None (Confirmation Request) Museum of Flight Date: December 31, 2016 308 Air St. Customer ID: 210-38725 Dayton OH 45404-1808 Invoice # Date Type 12/31/2016 Embroidered Goods 12-7113264 Amount Fleece Vests (500) $ 14,235.00 $ Total Reminder: Please include the invoice number(s) on your check. Terms: Balance due in 30 days. REMITTANCE Customer Name: Museum of Flight Customer ID: 210-38725 Statement #: None (Confirmation Request) Date: December 31, 2016 Amount Due: $14,235.00 Amount Enclosed: Balance Payment Description - $ 14,235.00 $ 14,235.00 Summit Hills Country Club 236 Dudley Road Crestview Hills, KY 41017 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors: Willis & Adams P.O. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. Your prompt attention to this request will be appreciated. An envelope is enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Carol McKay Carol McKay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $24,362 as of December 31, 2016, is correct except as noted below: CUSTOMER NAME Date By Greg Simon Print Name: Position: P.O. Box 787 - Boise, Idaho 83845 E A R T HW E A R C L O T HI E R S I N C - I NT ER OF F I C E M E M OR A ND U M TO: WILLIS & ADAMS, CPAS FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 254-65418 DATE: 1/22/2017 CC: SUMMIT HILLS COUNTRY CLUB The payment was received from the customer on January 2, 2017. All balances were outstanding as of the end of 2016. W&A Staff Auditor Note: Traced payment indicated by customer to daily remittance report. Payment was received on January 2, 2017. DLJ 1/23/2017 EarthWear Clothiers P.O. Box 787 Phone: (208) 555-0190 Boise, Idaho 83845 Fax: (208) 555-0191 E-mail: accounts@ewclothiers.com Statement Statement #: None (Confirmation Request) Bill To: Pro Shop Date: December 31, 2016 Summit Hills Country Club Customer ID: 254-62418 236 Dudley Road Crestview Hills, KY 41017 Date Type 12/19/2016 Invoice # Description Amount Payment Embroidered Goods 12-6156389 Club Blazers Female (35) $ 2,842.00 $ - $ 2,842.00 12/26/2016 Embroidered Goods 12-6756231 Assorted Dress Shirts (450) $ 18,635.00 $ - $ 18,635.00 12/27/2016 Embroidered Goods 12-6812246 Club Blazers Male (36) $ - $ 2,885.00 $ 24,362.00 2,885.00 $ Total Reminder: Please include the invoice number(s) on your check. Terms: Balance due in 30 days. REMITTANCE Customer Name: Summit Hills Country Club Customer ID: 254-62418 Statement #: None (Confirmation Request) Date: December 31, 2016 Balance Central States Hotels - Best Western Development Director 4346 MAIN ST KANSAS CITY MO 64111 - 1810 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors: Willis & Adams P.O. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. Your prompt attention to this request will be appreciated. An envelope is enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Carol McKay Carol McKay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $18,642 as of December 31, 2016, is correct except as noted below: Balance does not include Credit Memo 12-1006 issued on December 29, 2016 for $3,000. Balance should be $15,642. CUSTOMER NAME Date 1/21/2017 By Robert Morgan Print Name: Position: Robert Morgan Accounts Payable Clerk P.O. Box 787 - Boise, Idaho 83845 E A R T HW E A R C L O T HI E R S I N C - I NT ER OF F I C E M E M OR A ND U M TO: WILLIS & ADAMS, CPAS FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 652-54310 DATE: 1/24/2017 CC: CENTRAL STATES HOTELS - BEST WESTERN DEVELOPMENT DIRECTOR The customer service representative agreed to issue a $3,000 credit memo to the group when they called on December 29, 2016. The customer service representative inadvertently listed Western States Hotels which delayed processing of the credit memo until January 4, 2017. The credit memo was correctly attributed to Central States Hotels, but not until the next accounting period. The balance the customer listed of $15,642 is correct. EarthWear Clothiers P.O. Box 787 Phone: (208) 555-0190 Boise, Idaho 83845 Fax: (208) 555-0191 E-mail: accounts@ewclothiers.com Statement Statement #: None (Confirmation Request) Bill To: Best Western Development Director Date: December 31, 2016 Central States Hotels Customer ID: 179-26343 4346 Main Street Kansas City, MO 6411-1810 Date Type Invoice # Description Amount Payment 12/21/2016 Catalog Order 12-6200679 Dress Pants (150) $ 7,247.00 $ - $ 7,247.00 12/22/2016 Embroidered Goods 12-6214596 Assorted Dress Shirts (300) $ 11,395.00 $ - $ 11,395.00 $ 18,642.00 Total Reminder: Please include the invoice number(s) on your check. Terms: Balance due in 30 days. REMITTANCE Customer Name: Central States Hotels Customer ID: 179-26343 Statement #: None (Confirmation Request) Date: December 31, 2016 Amount Due: $18,642.00 Balance