Question

It is now 5 August 2018 and you are auditing Great Horizons Ltd (Great Horizons) for the year ended 30 June 2018. The accounts receivable balance at 30 June 2018 was $1,302,765 and was a material account balance for Great Horizons. You are reviewing a planned substantive test of detail to be performed by the junior auditor, Tom Hawkins, aimed at testing the accuracy, valuation an allocation of accounts receivable at 30 June 2018. Tom has randomly selected the following ten transactions included in the accounts receivable balance and intends to check for subsequent payments and also review the customer’s correspondence file to see if any follow-up on overdue amounts was noted.

	Invoice Due Date	Invoice Amount ($)
1	8 June 2018	1,505.50
2	16 June 2018	2,031.85
3	3 July 2018	9,655.90
4	6 July 2018	39.80
5	20 June 2018	121.80
6	27 May 2018	3,335.60
7	19 July 2018	3,225.10
8	9 June 2018	31.25
9	28 June 2018	5,980.40
10	27 May 2018	1,875.15
Total		27,802.35

1) Explain whether the sample Tom selected will provide sufficient appropriate audit evidence on the accuracy, valuation and allocation of accounts receivable as at 30 June 2018.

Answer 1

No, the sample Tom selected will not provide sufficient appropriate audit evidence on the accuracy, valuation and allocation of accounts receivable as at 30th June 2018.

This is beacuse the total of the receivables selected constitutes a very small proportion of the total receivables. The total of samples selected is 27802.35 while the total recevables are 1,302, 765.

Also if we see the individual invoice , it includes invoice of amount 39 , 121 ,31 which is very insignificant if we want to check the accuracy of the total receivables.

Another thing is that the invoices are only of the last quarter of the accounting period . Invoices of may , June and July are taken . The mistake made in the invoices of the rest of the months wil go unidentified.

The sample should be representative of the total amount and also of the invoices received during the whole year. Invoices of larger amounts should be included since the total amount is very huge. Transactions effected in the earlier months of the year should also be included.