One of the clients of Cain, CPA, is a local financial institution. As part of the standard audit procedures, Cain sent notes receivable confirmations to 50 of the 2,000 customers.

Although a return envelope was sent with the confirmations, most of the customers chose to bring the letter to the office. Cain was interrupted constantly to explain orally the nature of the confirmation letter. Customers were told that their signatures were to be placed on the letter without any additional comment only if they agreed that they owed the amount printed on the letter. Otherwise, the customers were asked to indicate the amount they believed they owed.

Few of the customers seemed to understand the oral instructions given by Cain, and most merely signed the letter and left it. Cain was perplexed by these responses, but did not know whether to send additional letters, look for alternative types of evidence, or simply accept these signatures without additional audit procedures.

Required:

a. Which of the three courses of action would you recommend? If you reject all three courses of action, what would you recommend?

b. Comment in general on the validity and limitations of audit evidence gained from confirmation letters sent to the public.