The audit firm of Efi and Edi Co. is examining the financial statements of a manufacturing company with a significant amount of trade receivable. Efi and Edi are satisfied that the accounts are adequately summarised and classified and that allocations, reclassifications and valuations are made in accordance with applicable accounting standards. Efi and Edi planning to use account receivable confirmation requests to verify trade accounts receivables.

Required:

a.Identify and describe the two forms of account receivable confirmation requests, and indicate what factors Efi and Edi will consider in determining when to use each.

(2 marks)

b.Assume Efi and Edi received a satisfactory response to the confirmation requests. Describe how they evaluate the collectability of the trade receivable.

(8 marks)