Question 2

You have engaged MSG as a client and have started the independent audit of MSGs financial statements. You have been asked to circulate the receivable confirmations to MSGs debtors. These letters seek to confirm the balances that MSG has in their accounts with that of its customers. On June 30, 2020 the Accounts Receivable balance is $3,980,250 and is considered material. MSGs payment terms are 14 days from the date of the invoice. Sixty per cent of the balance is represented by invoices outstanding from five different medical practitioners. The remaining forty per cent is made up of numerous smaller amounts, most of which have been outstanding for more than 60 days. Any allowance for doubtful debts is taken directly against the trade receivables account and not shown separately in the balance sheet. a. Discuss the strength and weaknesses of debtor confirmations as audit evidence for MSG. Include the deficiencies in the accounting system and accounts receivable process in your answer. b. Is it possible for Infinity Auditors to use debtor confirmations as the only audit evidence?