Question

REQUIRED: With your group members, explain the follow up steps you would want to take to satisfactorily clear each of the five comments from customers below. Think about and document whether the comment indicates a concern or not, what fraudulent activity could be happening or what errors could have occurred, what additional follow-up information would you want to seek out to gain comfort on the situation, etc.

You have been assigned to the first audit of the Chicago Company for the year ending March 31, 2017. Accounts receivable were confirmed on December 31, 2016, and at that date the receivables consisted of approximately 200 accounts with balances totaling $956,750. Seventy-five of these accounts with balances totaling $650,725 were selected for confirmation. All but 20 of the confirmation requests have been returned; 36 were signed without comments, 14 had minor differences that have been cleared satisfactorily, and 5 confirmations had the following comments:

1. We are sorry, but we can’t answer your request for confirmation of our account as the system we are using does not provide us the necessary information.

2. The balance of $1,050 was paid on December 23, 2016

3. We never received these goods.

4. The $10,000, representing a deposit under a lease, will be applied against the rent due to us during 2018, the last year of the lease.

5. We do not owe you anything at December 31, 2016, as the goods, represented by your invoice dated December 30, 2016, number 25050, in the amount of $11,550 were received on January 5, 2017, on FOB destination terms.

6. The balance of $7,750 was paid on January 5, 2017.

7. Amount okay, as the goods have been shipped to us on consignment, we will remit the payment upon selling the goods.

8. Your credit memo dated December 5, 2016, in the amount of $440 cancels the balance above.

9. We are contesting the propriety of this $12,525 charge. We think the charge is excessive.

10. An advance payment of $2,500 made by us in November 2016 should cover the two invoices totaling $1,350 shown on the statement attached.

Answer 1

1. We are sorry, but we can’t answer your request for confirmation of our account as the system we are using does not provide us the necessary information.

Apply alternate procedures to check whether the balances are correct and due at the given date.

2. The balance of $1,050 was paid on December 23, 2016

Ask the accounts department when the balance has already been settled then why is it coming under accounts receivables. Check whether there are any other possible balance coming which has already been settled.

3. We never received these goods.

Enquire how the balance is debited and check whether such sales have actually been made or whether any such order was received.

Confirm from the manager if any other such fake sale were reported and if necessary perform alternate procedure.

4. The $10,000, representing a deposit under a lease, will be applied against the rent due to us during 2018, the last year of the lease.

Ask the department why the amount that is not due has been entered into the receivables a\c.

Check the corresponding increase in the another account which has been credited and adjust the effect on profit.

6. The balance of $7,750 was paid on January 5, 2017.

Ask the department that any such amount was received.

If the amount was received that how come the balance is not adjusted.

Reconcile the amount of cash and reduce the balance from accounts receivables.

7. Amount okay, as the goods have been shipped to us on consignment, we will remit the payment upon selling the goods.

There is no problem in this situation as the amount has already been shipped to the customer and as per the policy of the customer the payment will be made once the gods are sold.

Enquire the department if any such policy exist. Reconcile with the past data if this credit period exceed the normal credit period given to other customers.