SOURCE AUDIT 1997 EXAMS 3-OUESTION Page 1 of Number 3 (20 points - approximately 54 minutes) Miller, CPA, is engaged to audit the financial statements of Superior Wholesaling for the year ended December 31, 1996. Miller obained and documented an understanding of Superior's internal control relating to accounts receivable and assessed control risk relating to accounts n 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. Assme that each confirmation is material if the potential misstatement is projected to the population. e at the maximum level. Miller requested and Required: a. Describe the procedure(s), if any, that Adler 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 sccounts receivable balances initially selected for confirmation for which no responses were received. Describe the alternative substantive procedures that Miller should consider applying to the accounts receivable selected for confirmation for which 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 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. substantive SOURCE AUDIT 1997 EXAMS 3-OUESTION Page 1 of Number 3 (20 points - approximately 54 minutes) Miller, CPA, is engaged to audit the financial statements of Superior Wholesaling for the year ended December 31, 1996. Miller obained and documented an understanding of Superior's internal control relating to accounts receivable and assessed control risk relating to accounts n 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. Assme that each confirmation is material if the potential misstatement is projected to the population. e at the maximum level. Miller requested and Required: a. Describe the procedure(s), if any, that Adler 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 sccounts receivable balances initially selected for confirmation for which no responses were received. Describe the alternative substantive procedures that Miller should consider applying to the accounts receivable selected for confirmation for which 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 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. substantive