You are about to commence the audit of Delta Ltd. (See Exhibit DC 10-2) This is the

You are about to commence the audit of Delta Ltd. (See Exhibit DC 10-2) This is the first time you have worked in the field without direct supervision by a senior, and you are, of course, anxious to do a good job. The senior has preceded you in visiting the client and has left you an audit file containing the following:

• An internal control questionnaire indicating no serious deficiencies in internal control over accounts receivable

• An aged accounts receivable listing prepared by the client

• Confirmation control schedule

• Returned confirmations

The confirmation control shows the following information:

• Number of accounts in the receivables sub ledger at December 31 = 65

• Number of positive confirms mailed = 15

• Number of negative confirms mailed = 30

The client year-end, December 31, was selected as the circulation date. Trade terms are 2/10, net/30.

Confirmation results are as follows:

1. Eight positive confirms returned indicating full agreement

2. One positive confirm returned indicating the balance was correct but this is the outstanding balance as at November 30, 20X2, not December 31, 20X2

3. One positive confirm returned stating the balance was correct but should also reflect a credit memo issued January 5, 20X3

4. One positive confirm returned stating the company uses an open invoice system and is unable to respond

5. One positive confirm responding that the amount shown is incorrect because it does not reflect the 2% cash discount taken January 3, 20X3

6. One positive and three negative confirms returned by the post office marked “No Such Address”

7. One positive confirm stating that the balance was correct but that the company refuses to pay because of defective product quality

8. One positive confirm not returned, even after two follow-up requests

9. Two negative confirms returned with no notations made by customers

10. One negative confirm returned stating the customer owed more than the balance shown

11. One negative confirm returned stating that the balance was correct but asking for an extension of credit terms

12. One negative confirm returned stating “Sue us” The first page of the aged trial balance supplied by the client for Delta as at December 31 is shown in Exhibit DC 10-2 .

Notes made by the senior indicate the following additional information:

• Abbey is an employee of Delta

• The $700 Babbitt account represents a consignment shipment

• The $500 October balance of Cabal has been formalized by a note receivable

• The Cadenza balance represents a deposit; no shipments have been made to them yet

Another note in the working-paper file indicates that the client asked you not to send confirmation requests to Dacron Ltd. because they are worried about jeopardizing the ongoing collection efforts for the $3,000 past-due balance. Also, you were requested not to circularize Cadaver because Delta is extremely happy to have such a large account and wants to avoid bothering them in any way.

Required:
Analyze the evidence already obtained and describe any further procedures required to complete the audit of accountsreceivable.

Transcribed Image Text:

EXHIBIT DC 10-2 DELTA LTD AGED TRIAL BALANCE ACCOUNT BALANCE DEC NOV PRIOR (GR) $4,200 $2,100 Aardwark Enterprises Abacus Inc. Abalone Co Abbey, Fred Abstract Enterprises Babbitt Inc. Bacchus Co Cabal Ltd. Cacao Enterprises Cadaver Inc. Cadenza Co Dacron Ltd Subtotal (first page) $2,100 $%900 3,200 $1,200 5,500 (600) 1,100 700 6,000 1,000 1,000 400 200 700 2,000 4,000 30,000 30,000 (1,200) 1,200) 100 $34,600 3,100 $49,800 3,000 $4,700 $9,700 $700