This week you will do a short exercise on A/R confirmation as a group. For this exercise, your group has already collected 7 AR receivable confirmations.Click here for the confirmations collected

Your Tasks:

When you examine customers' responses on the returned confirmations, you will see that several customers have disputed the outstanding AR balance as of the fiscal end date. As you see in EXHIBIT 7.13 in the textbook (page 296), auditors must take follow-up actions to investigate whether these discrepancies indicate a misstatement. Describe an appropriate follow-up action for each case of confirmations. Note that not all discrepancies in the confirmation lead to a conclusion that the A/R balance is misstated. You may even conclude that the customer is mistaken and there is not further action to be taken. Submit a Word file with your answers. Page (296) attached

If an exception cannot be resolved or it appears to indicate a misstatement, auditors should (1) determine the cause of the Page 290 misstatement, (2) extrapolate the misstatements over the population, and (3) consider whether fraud may have occurred. If similar misstatements could exist, additional procedures are generally necessary to determine the extent of misstatements. In the case of fraud, an extensive investigation may be necessary.' Confirmation of receivables may be performed at a date other than the year-end. When confirmation is done at an interim date, the audit firm is able to spread work throughout the year and avoid the pressures of overtime that typically occur during "busy season." In addition, the audit can be completed sooner after the year-end date if confirmations have been done earlier. The primary consideration when planning confirmation of receivables before the balance sheet date is the client's internal control over transactions affecting receivables. When confirmation is performed at an interim date, the following additional procedures should be considered: 1. Obtain a summary of receivables transactions from the interim date to the year-end date, and review them for unusual items. 2. Vouch a selected sample of transactions for the period. 3. Obtain a year-end trial balance of receivables, compare it to the interim trial balance, and obtain evidence and explanations for large variations. 4. Consider the necessity for additional confirmations as of the balance sheet date if balances have significantly increased.Alternative Procedures Often, the client's customers are not willing or able to return the conrmation. They may not be able if, for example, they are on a voucher system that lists payables by invoice instead of by vendor account. The U. S. government is notorious for not returning conrmations because records may be kept at various agencies. In these cases, auditors must perform alternative procedures to ensure existence. These include examining (1) subsequent cash receipts; (2) sales orders, invoices, and shipping documents; and (3} correspondence les for past-due accounts. Examining subsequent cash receipts is a particularly effective test because if the customer paid the account, it provides strong evidence that the receivable existed. This examination is often performed even when the customer has conrmed the account, because subsequent collection of cash is the strongest evidence supporting the valuation assertion of accounts receivable. The cash receipt should be traced to the remittance advice and the deposit into the client's cash account