Question

As part of the fieldwork of an audit engagement, the senior on the audit obtained and documented an understanding of the company's internal control relating to accounts receivable and assessed control risk related to accounts receivable at the maximum level. Alejandro, the staff person assigned to the engagement, requested and obtained from the company an aged accounts receivable schedule listing the total amount owed by each customer as of December 31, 2017, and sent positive confirmation requests to a sample of the company customers. Review Alejandro's comments on each of the following five confirmations and determine the best conclusion and/or follow-up procedures for each item. Assume that each confirmation has been signed with the appropriate signature unless otherwise noted.

February 1, 2018
West Coast Ski Center, Inc.
163 Tide Avenue
Monterey, California 93940
Re: Balance at December 31, 2017 - $414,000
Dear Sirs:
As of December 31, 2017, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Aquatic Jet Products, Inc.

The above balance is	Correct
X	Incorrect (show amount)	$320,000

If incorrect, please provide information that could help to reconcile your account.

Response: We made a payment of $94,000 on December 12, 2017.

Signature	Title
	Date

Alejandro's note to file:

  

Per discussion with the controller, the company received the payment of $94,000 on December 15, 2017, and posted it to “Other Income.”

Answer 1

Account receivable is the amount that is due from all the persons to whom a person has sold goods or provided services.

External confirmation is the confirmation request that the auditor sends to all the parties whose balance is standing in the books of accounts either on the asset side or on the liability side. It can be either positive confirmation or negative confirmation. A positive confirmation request is a request in which the responding party is asked to reply in all the circumstances whereas a negative confirmation request is a request wherein the responding party is asked to reply only in case of disagreement.

While auditing, the auditor has the right to send external confirmations to all the parties from whom amy money is due to be received. In case of any disagreement, the auditor needs to perform extended procedures and consider its affect on his audit report. By extended procedures, he could check the trail of transactions etc.