You are conducting the audit of Simon Inc. as of December 31, 2017. As you complete gathering evidence, you become aware that one of Simon's major customers (Smith) is experiencing significant financial difficulties. Smith normally accounts for 5 percent of Simon's net sales. After performing the necessary procedures, you believe that $2.6 million of Smith's receivable balance will ultimately become uncollectible. You further believe this amount is material to Simon's financial condition and results of operations.

describe the most appropriate course of action that should be taken by auditors. Cite the relevant professional standards that apply to the situation.