You are an Audit Trainee and your very first audit is that of Y&G Retailers (Pty) Ltd. During the audit you overheard the following conversation between the Audit Supervisor and Audit Partner:

What can be wrong with that! asked the Audit Supervisor from the Audit Partner. The Financial Manager (FM) told me himself that the balance outstanding owed by Pack and Pay (Pty) Ltd of R3 million is recoverable!

Pack and Pay (Pty) Ltd is one of Y&G Retailers (Pty) Ltds biggest customers. Although the balance from Pack and Pay (Pty) Ltd is now outstanding for 240 days, the FM of Y&G Retailers (Pty) Ltd is confident that there is no need to make a provision for the write-off of the Pack and Pay (Pty) Ltd debt. You also read in the newspaper that Pack and Pay (Pty) Ltd applied for voluntary liquidation. It is Y&G Retailers (Pty) Ltds policy to provide for all debt that is more than 120 days outstanding.

Assume that the above is the only evidence gathered to confirm the recoverability of the Pack and Pay (Pty) Ltd debt and you can also assume that the amount is material.

REQUIRED:

With reference to ISA 500, discuss the appropriateness of the audit evidence gathered for the valuation of the accounts receivable balance for the Pack and Pay (Pty) Ltd debtor included in the financial statements of Y&G Retailers (Pty) Ltd.

(16 marks)