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.

Requirement is in bold

February 1, 2018
NC Boating Center, Inc.
110 Windward Blvd.
Tierra Verde, Florida 33715
Re: Balance at December 31, 2017 - $239,000
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
	Incorrect (show amount)	$

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

  

Response: We cannot determine the balance due at December 31, 2017.

Signature	Title
	Date

Alejandro's note to file:

  

No amount was confirmed on the response letter.

Answer 1

Facts:

Extenal Confirmation is sought by Alejandro to confirm the debtors balances as at 31st December 2017. He did not receive any response in relation to the confirmation letter.

Answer: Procedure to be followed when there is no response to the confirmation letter sent for third party references

External confirmations are one of the key audit procedures followed to look into and confirm that the debtors balances are fairly stated as on the balance sheet date. These third party confirmations are considered as sufficient and appropriate audit evidence obtained in the course of conducting the audit as per the regulations.

Objective: For sending the debtor confirmation letters is to confirm whether the debtors balances are fairly stated as on the balance sheet date

Procedures followed : Sending the Confirmation letters to selected debtors

Further procedures to be followed if no response is received:

Alejandro, the audit personnel concerned should send the reminder letter to the debtors requesting them to confirm the balance. If he receives the response well and good. Otherwise, he should perform the following alternative procedures to obtain reasonable appropriate audit evidence.

1. Can check the subsequent receipts from the parties and confirm that the balance stated on the balance sheet date is correct.

2. Can do open invoice checking, i.e., check the appropriate invoice issued to the creditor for which the amount is due to be received as on the balance sheet date.

Conclusion: After following all the procedures given above and going through the evidences obtained Alejandro should draw out the appropriate conclusion and express his opinion.