You have audited the financial statements of Syarikat Mantra Sdn Bhd, a fast food manufacturing company, for the past several years. Mantra closes its account on 31 December every year.

On 31 August, you performed an interim audit, including verifying the company's receivables (ABT) accounts. The results of the audit found that accounting for cash, sales, return on sales & allowances as well as ABT was satisfactory. Internal control over ABT is also satisfactory. At that time there were 1,500 active debtors representing 35% of the 65% amount of ringgit, kept in the ABT master file.

Mantra Sales & Collection Cycle System Operation Process Sdn Bhd:

When the input on the information in the delivery note is entered into the computer, the system simultaneously releases the updated sales invoice, sales journal, and ABT in the master file. All cash is received in the form of a check from the customer. Information on receiving cash is obtained from "remittance advice" which is a letter sent by the customer along with a customer check explaining the invoice that has been paid by the customer. Details of the transaction are found in this letter. The computer operator then compares the information in the "remittance advice" with a checklist provided by another employee who is specifically assigned as the recipient of the letter. All information on sales, cash receipts and ABT journals in the master file is updated simultaneously when the cash receipt information is input into the system. Summary of total cash, sales and ABT accounts are issued monthly by the Computerized Operations Department when the general ledger master file is updated. Balances are provided on a monthly basis.

Be required:

a) State TWO (2) objectives of control test on sales and collection cycle. (2 marks)

b) Explain THREE (3) additional audit procedures required to test the account balances in the sales and collection cycle of Syarikat Mantra Sdn Bhd. (6 marks)

c) Distinguish between ABT positive verification method and ABT negative verification method and explain which method is suitable to be implemented on Mantra debtors. (5 marks)

d) Suggest alternative procedures that can be used by the auditors in testing the accuracy of the debtor's account balance when the customer does not respond to the confirmation requested. (2 marks)