Page 1 of 3 SOURCE: AUDIT 1997 EXAMS 13 - QUESTION Number 3 (20 points - approximately 54 minutes) Miller, CPA, is engaged 10 audit the financial statements of Superior Wholesaling for the year ended December 31, 1996. Miller obtained and documented an understanding of Superior's internal control relating to accounts receivable and assessed control risk relating to accounts receivable at the maximum level. Miller requested and obtained from Superior an aged accounts receivable schedule listing the total amount owed by each customer as of December 31, 1996, and sent positive confirmation requests to a sample of the customers. Subsequently, Miller tested the accuracy of the aged accounts receivable schedule. Miller has asked Adler, the staff assistant assigned to the engagement, to follow up on the eight returned confirmations that appear on the following two pages. Assume that each confirmation is material if the potential misstatement is projected to the population. Required: a. Describe the procedure(s), if any, that Adder should perform to resolve each of the eight confirmations that were returned. Assume that Superior will record any necessary adjusting entries and that Adler will verify that they are appropriate. b. Assume that Miller sent second requests for accounts receivable balances initially selected for confirmation for which no responses were received. Describe the alternative sulustantive procedures that Miller should consider applying to the accounts receivable sclected for confirmation for whicly no responses were received to Miller's second requests. Assume that these accounts receivable in the aggregate, when projected as misstatements to the population, would affect Miller's decision about whether the financial statements are materially misstated. c. In addition to performing the confirmation procedures and alternative procedures described in requirements a and b and the procedures described in the first paragraph above, what additional substantive procedures should Miller consider performing to complete the audit of Superior's accounts receivable and related allowances? Assume that all accounts receivable are trade receivables. Page 2 of 3 SOURCE: AUDIT 1997 EXAMS 3 - QUESTION Superior Wholesalin. Iac. 133 Conuercalvd. AURA Jay 15, 1957 AC Na Stower Confirm 111 Superler Wholesaling, Inc. 125 Comercial Anytown, USA January 15, 1997 Baker Co. 18 Lekariew Drive Confirm 28 Central ay, USA Dear S. Brown Our audier, Miller, CPA, is currently wading our facial alemcut. To facile his dit, please confirm the balance de was of December 31, 1996, which is show on our records $25.01. Indicate in the space below whether this is in agree with your records. If there are exceptions, please provide any information thm will assist the auditor to winciting the difference Please all you reply directly to Miller, CPA. A simped, self- addressed awcy is enclosed for your convenience. Sincerely, lake 3.ke, Controller Superior Wholesaling, Inc. To Miller, CPA: The amount shown above is correct as of December 31, 1996, except as follows: Sury, wondered $25.000 ef merchandise on Od 10.1996. Superior es restes recewly. They had eardered the pas end we finally received them on Jew. 37997 Names Brown Position A/P Supervisor Date 1/97 Dear Cl. Adam Our wow, Miller, CPA, sweaty oditing oor financial s. To fictitate disa dit,pate codi de balance due w of December 31, 1996, which is shows our records as SI5.02. India in the gate below wheels is in agreemen w your records. If there are exception, please provide any Indommation that will de meditor in reconciling the difference Mirase all your reply directly to Miller, CPA. Asumed, self- desvelapela adieced for your conveniente. Sincerely. 2. Make J. Blake, Controller Superior Wholesaling, Inc. To Milles, CPA The col shown above is corrof December 31, 1976, except as follows: Yar wenke$5.000 homes Super Merke New Hmo Series check for $15.000 TEC Net Lem Pestion Accow Mer. Dett.212222 Nelle filer Bele indicates that the check ww mweled end deposited on 12/28/96, der posted to the wrong customers aan C. Wer Superior Wholesaling, Loc. 123 Commercial Blvd. AsylowUSA January 15, 1997 Clark Real 35 Lincoln Confinn #34 Jadsor, USA Dear J. R. Cantik Our auditor, Miller, CPA, Currently andling our financial Statettu. To facilitate dis nodit, please conforto the balance due us as of December 31, 1996, which is shown on our records as $3.02. Indicate in the space below whether this is la agreement with your needs. If there are excepdou, please provide any Infoment will assist the saditor in reconciling the difference Please call your reply directly to Miller, CPA. A started, self- addressed envelope is enclosed for your convenience. Slacerely, J. Blake J. de Control Superior Wholesaling, Inc. To Miller, CPA Tht tout shown above is correct as of December 31, 1996, except follows: ered 24. reden.com leem Superior Authortenettely Nume I. Ces Position Presiden Date 1/19/97 Superior Wholesaling, loc. 123 Commerdal ivd. Anytowe, USA January 15, 1997 Delta Outlet Storer, Inc. Sunshine Mall Confirm 141 River City, USA Doar R. Du Our auditor, Miller, CPA, is currendy suditieg our financial statements. To facilitate this dit, please confirm the balance due us as of December 31, 1996, which is show on our records as S45.4. Indicate to the space below whether this is in agreement with your records. If there are exceptions, please provide any Information that will assist the auditor fin reconciling the differace. Plente mail your reply directly to Miller, CPA. Asped, self- addressed envelope is enclosed for your convenience. Sincerely, J. Blake J. Blake, Controller Superior Wholesaling, Inc. To Miller, CPA: The most shown above is conect as of December 31, 1996, except as follows: No wart Serior parted there reedt in 10 dae Ders When we de receive them. I canceled the order on Dec 12 General Wholesaling shipped iar con Name R. Dunn Position General Manager Date Jan. 18 Pare 3 of 3 SOURCE: AUDIT 1997 EXAMS EL QUESTION per Wing, Inc. 123 Commercial Anyton, Jy 15, 1997 Stare Med Comfort 158 Os 64 Dew T. Empler Our dies, Mall, CPA. I eady editing or financial ents. To facilities, please confirm the Lalance as of Dee 31, 1996, which is shown of records as ASE. Indiente in the space below whether this is in apreencat wia y records. If there are exceptions, please provide any Information will assist the wider in conciling the different Heue mill your reply directly to Milk, CP. A stamped, self- and career in enclosed fe your conce Serly. Super Woladies, Inc. 123 Commercial Blvd Anyton, USA January 15, 1997 Franco. 27 Chled Sre Confira 867 Jay C, USA Der S. It Our discr. Miller. CPA, is certy auditing our financial siemens. To facilis odit, please confirm the balance de us of December 31, 1996, which is shown on cor records as $66.60. ledicate in the space below wear this is is agreement with your seconds. If there are exception, please provide any informatice that will assist the auditors roconciling the diference Please mail your reply directly to Miller, CPA. A stamped, at addressed clope send for your convenience. Slacerely, 2. Blake J. Bake, Conor Superler Wholesating, Inc. To Miller, CPA The amoun shown above is correct as of December 31, 1996, stept as follows: de Charles Seper Wholesaling, Inc. To Miller, CPA: Te not shown above is rectas e Deuter 31, 1996, cepe as follows: Alle rechter individualno am 35.000. Sapererente con Ieremehele verden som El Pation Accewinder Take 17992 Superler Wielesai, loc 123 Cetinercial Blvd. Angle, USA January 15, 1997 Grow Rota 3832 Court Confirn #71 Vinlow Celier, USA Dear H. GAN Our soir, Mitler, CPA is currently auditing our financial sti. To facilitate thuis odit, please confian the balance due of December 31, 1996, which is shown on cor records as 28.01. Indicate in the space low whether this is lo agreement with your records. If there are exceptions, please provide may lafonate that will assist the auditor is reconcilia the difference. Picemail your reply directly to Miller, CPA. A comped, self dered caclopedi enclosed for your convenience. Sincere 2. Alake 1. Ele, Cooler Superior Wholesales. It To Me, CPA: The shown above is correct as of December 31, 1996, except follows: Outrobe check for $28.02.ited ou Nat M. Gais Position Controller Date 1/22/97 Tosition Dals Nafe to flee This confirmation wat red by the postal service ar fhur de sender - no puc adresse of location. C. Mer Superior Wholesaling, Inc. 123 Commercial Divd. Amylema, USA Jawy 15, 1997 Hall Enterprises, Inc. 55 Green Street Confirm #86 Grand Cly, USA Dear : Our madhor, Miller, CPA. Is corently auditing our financial iments. To facile das audit, please confirm the balance de as of December 31, 1996, which is shown on cor records as I. Indicate in the space below whither this is in og with your records. If dere are exceptions, please provide say Information dis will assist the auditor to reconcillog the differenco Please tell your reply directly to Miller, CPA. Amped, self- addressed envelope is caclosed for your convenience. Sincerely. J. Blake J. Blake, Controller Superior Wholesaling. Io. To Miller, CPA: The amount shown above is correct of December 31, 1996, cxcept as follow Meileder check lamente 11.972 merchandise were reached on 12.73-8 Name K. Hines Position Account Date 1-18-97 Page 1 of 3 SOURCE: AUDIT 1997 EXAMS 13 - QUESTION Number 3 (20 points - approximately 54 minutes) Miller, CPA, is engaged 10 audit the financial statements of Superior Wholesaling for the year ended December 31, 1996. Miller obtained and documented an understanding of Superior's internal control relating to accounts receivable and assessed control risk relating to accounts receivable at the maximum level. Miller requested and obtained from Superior an aged accounts receivable schedule listing the total amount owed by each customer as of December 31, 1996, and sent positive confirmation requests to a sample of the customers. Subsequently, Miller tested the accuracy of the aged accounts receivable schedule. Miller has asked Adler, the staff assistant assigned to the engagement, to follow up on the eight returned confirmations that appear on the following two pages. Assume that each confirmation is material if the potential misstatement is projected to the population. Required: a. Describe the procedure(s), if any, that Adder should perform to resolve each of the eight confirmations that were returned. Assume that Superior will record any necessary adjusting entries and that Adler will verify that they are appropriate. b. Assume that Miller sent second requests for accounts receivable balances initially selected for confirmation for which no responses were received. Describe the alternative sulustantive procedures that Miller should consider applying to the accounts receivable sclected for confirmation for whicly no responses were received to Miller's second requests. Assume that these accounts receivable in the aggregate, when projected as misstatements to the population, would affect Miller's decision about whether the financial statements are materially misstated. c. In addition to performing the confirmation procedures and alternative procedures described in requirements a and b and the procedures described in the first paragraph above, what additional substantive procedures should Miller consider performing to complete the audit of Superior's accounts receivable and related allowances? Assume that all accounts receivable are trade receivables. Page 2 of 3 SOURCE: AUDIT 1997 EXAMS 3 - QUESTION Superior Wholesalin. Iac. 133 Conuercalvd. AURA Jay 15, 1957 AC Na Stower Confirm 111 Superler Wholesaling, Inc. 125 Comercial Anytown, USA January 15, 1997 Baker Co. 18 Lekariew Drive Confirm 28 Central ay, USA Dear S. Brown Our audier, Miller, CPA, is currently wading our facial alemcut. To facile his dit, please confirm the balance de was of December 31, 1996, which is show on our records $25.01. Indicate in the space below whether this is in agree with your records. If there are exceptions, please provide any information thm will assist the auditor to winciting the difference Please all you reply directly to Miller, CPA. A simped, self- addressed awcy is enclosed for your convenience. Sincerely, lake 3.ke, Controller Superior Wholesaling, Inc. To Miller, CPA: The amount shown above is correct as of December 31, 1996, except as follows: Sury, wondered $25.000 ef merchandise on Od 10.1996. Superior es restes recewly. They had eardered the pas end we finally received them on Jew. 37997 Names Brown Position A/P Supervisor Date 1/97 Dear Cl. Adam Our wow, Miller, CPA, sweaty oditing oor financial s. To fictitate disa dit,pate codi de balance due w of December 31, 1996, which is shows our records as SI5.02. India in the gate below wheels is in agreemen w your records. If there are exception, please provide any Indommation that will de meditor in reconciling the difference Mirase all your reply directly to Miller, CPA. Asumed, self- desvelapela adieced for your conveniente. Sincerely. 2. Make J. Blake, Controller Superior Wholesaling, Inc. To Milles, CPA The col shown above is corrof December 31, 1976, except as follows: Yar wenke$5.000 homes Super Merke New Hmo Series check for $15.000 TEC Net Lem Pestion Accow Mer. Dett.212222 Nelle filer Bele indicates that the check ww mweled end deposited on 12/28/96, der posted to the wrong customers aan C. Wer Superior Wholesaling, Loc. 123 Commercial Blvd. AsylowUSA January 15, 1997 Clark Real 35 Lincoln Confinn #34 Jadsor, USA Dear J. R. Cantik Our auditor, Miller, CPA, Currently andling our financial Statettu. To facilitate dis nodit, please conforto the balance due us as of December 31, 1996, which is shown on our records as $3.02. Indicate in the space below whether this is la agreement with your needs. If there are excepdou, please provide any Infoment will assist the saditor in reconciling the difference Please call your reply directly to Miller, CPA. A started, self- addressed envelope is enclosed for your convenience. Slacerely, J. Blake J. de Control Superior Wholesaling, Inc. To Miller, CPA Tht tout shown above is correct as of December 31, 1996, except follows: ered 24. reden.com leem Superior Authortenettely Nume I. Ces Position Presiden Date 1/19/97 Superior Wholesaling, loc. 123 Commerdal ivd. Anytowe, USA January 15, 1997 Delta Outlet Storer, Inc. Sunshine Mall Confirm 141 River City, USA Doar R. Du Our auditor, Miller, CPA, is currendy suditieg our financial statements. To facilitate this dit, please confirm the balance due us as of December 31, 1996, which is show on our records as S45.4. Indicate to the space below whether this is in agreement with your records. If there are exceptions, please provide any Information that will assist the auditor fin reconciling the differace. Plente mail your reply directly to Miller, CPA. Asped, self- addressed envelope is enclosed for your convenience. Sincerely, J. Blake J. Blake, Controller Superior Wholesaling, Inc. To Miller, CPA: The most shown above is conect as of December 31, 1996, except as follows: No wart Serior parted there reedt in 10 dae Ders When we de receive them. I canceled the order on Dec 12 General Wholesaling shipped iar con Name R. Dunn Position General Manager Date Jan. 18 Pare 3 of 3 SOURCE: AUDIT 1997 EXAMS EL QUESTION per Wing, Inc. 123 Commercial Anyton, Jy 15, 1997 Stare Med Comfort 158 Os 64 Dew T. Empler Our dies, Mall, CPA. I eady editing or financial ents. To facilities, please confirm the Lalance as of Dee 31, 1996, which is shown of records as ASE. Indiente in the space below whether this is in apreencat wia y records. If there are exceptions, please provide any Information will assist the wider in conciling the different Heue mill your reply directly to Milk, CP. A stamped, self- and career in enclosed fe your conce Serly. Super Woladies, Inc. 123 Commercial Blvd Anyton, USA January 15, 1997 Franco. 27 Chled Sre Confira 867 Jay C, USA Der S. It Our discr. Miller. CPA, is certy auditing our financial siemens. To facilis odit, please confirm the balance de us of December 31, 1996, which is shown on cor records as $66.60. ledicate in the space below wear this is is agreement with your seconds. If there are exception, please provide any informatice that will assist the auditors roconciling the diference Please mail your reply directly to Miller, CPA. A stamped, at addressed clope send for your convenience. Slacerely, 2. Blake J. Bake, Conor Superler Wholesating, Inc. To Miller, CPA The amoun shown above is correct as of December 31, 1996, stept as follows: de Charles Seper Wholesaling, Inc. To Miller, CPA: Te not shown above is rectas e Deuter 31, 1996, cepe as follows: Alle rechter individualno am 35.000. Sapererente con Ieremehele verden som El Pation Accewinder Take 17992 Superler Wielesai, loc 123 Cetinercial Blvd. Angle, USA January 15, 1997 Grow Rota 3832 Court Confirn #71 Vinlow Celier, USA Dear H. GAN Our soir, Mitler, CPA is currently auditing our financial sti. To facilitate thuis odit, please confian the balance due of December 31, 1996, which is shown on cor records as 28.01. Indicate in the space low whether this is lo agreement with your records. If there are exceptions, please provide may lafonate that will assist the auditor is reconcilia the difference. Picemail your reply directly to Miller, CPA. A comped, self dered caclopedi enclosed for your convenience. Sincere 2. Alake 1. Ele, Cooler Superior Wholesales. It To Me, CPA: The shown above is correct as of December 31, 1996, except follows: Outrobe check for $28.02.ited ou Nat M. Gais Position Controller Date 1/22/97 Tosition Dals Nafe to flee This confirmation wat red by the postal service ar fhur de sender - no puc adresse of location. C. Mer Superior Wholesaling, Inc. 123 Commercial Divd. Amylema, USA Jawy 15, 1997 Hall Enterprises, Inc. 55 Green Street Confirm #86 Grand Cly, USA Dear : Our madhor, Miller, CPA. Is corently auditing our financial iments. To facile das audit, please confirm the balance de as of December 31, 1996, which is shown on cor records as I. Indicate in the space below whither this is in og with your records. If dere are exceptions, please provide say Information dis will assist the auditor to reconcillog the differenco Please tell your reply directly to Miller, CPA. Amped, self- addressed envelope is caclosed for your convenience. Sincerely. J. Blake J. Blake, Controller Superior Wholesaling. Io. To Miller, CPA: The amount shown above is correct of December 31, 1996, cxcept as follow Meileder check lamente 11.972 merchandise were reached on 12.73-8 Name K. Hines Position Account Date 1-18-97