As part of the audit of KC Enterprises, the auditor assessed control risk for the existence and
Question:
As part of the audit of KC Enterprises, the auditor assessed control risk for the existence and valuation assertions related to accounts receivable at the maximum level. Katie, the staff person assigned to the engagement, sent positive confirmation requests to a sample of the company customers based on their balances as of December 31, 2012. For each of the three customers described here, review the relevant confirmation letter and Katie's comments at the bottom of each. Select the procedure that should be followed to clear the exception, if one exists. Choose only one procedure per confirmation. A procedure may be used once, more than once, or not at all.
a.
February 1, 2013
Meehan Marine Sales, Inc.
1284 River Road
Louisville, Kentucky 40059
Re: Balance at December 31, 2012-$267,000
As of December 31, 2012, 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, GJ LLP, P.O. Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
____________________
KC Enterprises
.....................................................................................................................
The above balance is Correct
X Incorrect (show amount) $325,000
If incorrect, please provide information that could help to reconcile your account.
Response: We placed an order for $58,000 on December 26, 2012.
Signature:_____________________________
Title: :________________________________
Date:_________________________________
_________________
Katie's note to file:
Per discussion with the controller and review of relevant documentation, the order for $58,000 was shipped f.o.b. shipping point on December 30, 2012 and was received by the customer on January 3, 2013. Therefore, the client has made no entry to record the sale in 2012.
February 1, 2013
West Coast Ski Center, Inc.
163 Tide Avenue
Monterey, California 93940
Re: Balance at December 31, 2012-$414,000 As of December 31, 2012, 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, GJ LLP, P.O. Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
_____________________
KC enterprises
.....................................................................................................................
The above balance is Correct
X Incorrect (show amount) $325,000
If incorrect, please provide information that could help to reconcile your account.
Response: We made a payment of $94,000 on December 12, 2012.
Signature:_____________________________
Title: :________________________________
Date:_________________________________
_________________
Katie's note to file:
Per discussion with the controller and review of relevant documentation, the company received the payment of $94,000 on December 15, 2012, and posted it to "Other Income."
c.
February 1, 2013
Fish & Ski World, Inc.
5660 Ocean Blvd
Port Arkansas, Texas 78373
Re: Balance at December 31, 2012-$72,000
As of December 31, 2012, 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, GJ LLP, P.O. Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
__________________
KC Enterprises
.....................................................................................................................
The above balance is Correct
X Incorrect (show amount) $325,000
If incorrect, please provide information that could help to reconcile your account.
Response: Per our records, the following invoices are outstanding:
Invoice #4212 $72,000
Invoice #4593 $66,000
Invoice #4738 $25,000
Signature:_____________________________
Title: :________________________________
Date:_________________________________
_________________
Katie's note to file:
Per review of the A/R aging report, invoices #4593 and 4738 are not on the A/R aging report at December 31, 2012.
Possible procedures:
1. Not an exception, no adjustment necessary. Determine the sufficiency of allowance for doubtful accounts.
2. Exception noted; propose adjustment and request that the controller post it to the accounting records.
3. Verify by examining subsequent cash collections and/or shipping documents.
4. Review appropriate documentation to verify that additional invoices noted on confirmation pertain to the subsequent year.
Accounts ReceivableAccounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Step by Step Answer:
Auditing A Business Risk Approach
ISBN: 978-0538476232
8th edition
Authors: Karla Johnstone, Audrey Gramling, Larry Rittenberg