This week you will 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.
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. Apollo Shoes, Inc. Shoctown, ME Neutralizer 1359 Central Boulevard Derma, MS 39530 Attn: Accounts Payable Dept. Our auditors, Anderson. Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carbay Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2020, is $3,051,755.48 Purchases from Apollo Shoes during the year 2020 totaled $3,051.755.48 This balance is correct except as noted below. Our records indicate that we owe $1385.75 more than indicated above. We wrote a check to Apollo on 12/28 for $3,053,144.23 for 10 pallets of shoes.Apollo Shoes, Inc. Shoetown, ME Mall-Warts 146 Boardwalk Drive Atlantic City, NJ 08401 Attn: Accounts Payable Dept. Our auditors, Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carboy Samuel Carboy, Controller The balance due Apollo Shoes as of December 31. 2020. is $20.549.225.88 Purchases from Apollo Shoes during the year 2020 totaled $122.826, 158.60 These amounts are correct except as noted below. The amounts appear right, but we entered into involuntary bankruptcy on November 3. We told Apollo about this back at that time. We don't know why they shipped us so many pairs in late December (including over 1600 pairs of size 23's that we can't even give away!)! We didn't order them and we can't afford to send them back! Date: 1/14/2021 By: Action JacksonApollo Shoes, Inc. Shoetown, ME Run for Your Life Shoes Attn: Accounts Payable Dept. 5110 Speedway Drive Los Angeles, CA 90035 Our auditors. Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carboy Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2020, is $2,165,500.55 Purchases from Apollo Shoes during the year 2020 totaled $2, 165,500.55 This balance is correct except as noted below: You we made one purchase from Apollo during the year, but we paid the entire amount on 1/5. Date: 1/414/2021 By: Justin Thompson Title: Accounts Payable CoordinatorApollo Shoes, Inc. Shoctown, ME Tread Attn: Accounts Payable Dept. Highway 67 French Lick, IN 47432 Our auditors, Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND COMPARE THEM TO YOUR RECORDS OF YOUR ACCOUNT WITH US. IF THE INFORMATION IS NOT IN AGREEMENT WITH YOUR RECORDS, PLEASE STATE ANY DIFFERENCES BELOW AND RETURN DIRECTLY TO OUR AUDITORS IN THE RETURN ENVELOPE PROVIDED. IF THE INFORMATION IS CORRECT, NO REPLY IS NECESSARY. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carbay Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2020, is $1,308.75 Purchases from Apollo Shoes during the year 2020 totaled $3,091,017.74 This balance is correct except as noted below: We were told in November that our account had already been credited for the amount fisted abows for a return of 5 paus of defective shoes. Total purchases agree with our wcords though. Date: 1/14/ 2021 By:. Shockey Joe Johanson Title: President, Fiend ShoesApollo Shoes, Inc. Shoetown, ME Paul Bunion Footwear Attn: Accounts Payable Dept. Lone Mountain Trail P.O. Box 10558 Big Sky, MT 59717 Our auditors, Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carboy Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2020, is $11,558,847.50 Purchases from Apollo Shoes during the year 2020 totaled $29,270,632.63 This balance is correct except as noted below: No problems noted" Date: 1/21/2021 By: Kevin Bunion Title: VP Finance PASApollo Shoes, Inc. Shoetown, ME Sassy Shoes Attn: Accounts Payable Dept. 440 W. 53rd Street New York, NY 10018 Our auditors, Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carbay Samuel Carboy, Controller The balance due Apollo Shoes as of December 31. 2020, is 36,400.081.85 Purchases from Apollo Shoes during the year 2020 totaled $15, 170,041.85 This balance is correct except as noted below: Yes we owed it. This is the third letter that we've received from you people!!! Our sales are just running a little slowly this year, but we paid on the tenth so quit hassling us! Date: By: Title: Zanman Since CaliO Apollo Shoes, Inc. Shoetown, ME International Soccer Federation Attn: Accounts Payable Dept. Birmingham Road Stratford-upon-Avon Warwickshire CV34 6LT England Our auditors. Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carboy Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2020, is $1,222,359.56 Purchases from Apollo Shoes during the year 2020 totaled $3,228,779.92 This balance is correct except as noted below: The amounts are correct as stated I don't think we are going to buy any more though. The sirens keep going off prematurely and it's causing our fans to riot. Date: 1/21/2021 By: Foots Mckinney Title: Equipment Manager. IST
