Assume that you are auditing a real estate company that owns and rents several apartment buildings. In total, the company owns 22 buildings and has over 1,000 apartments that it rents out on annual leases. You are auditing accounts receivables. From past experience, it has been difficult to get renters to confirm receivables at the end of the year. As an alternative, you choose to use ADA to investigate the relationship between accounts receivable and subsequent cash receipts. Using ADA, you get the following results.

Required

a. What assertion(s) is the auditor investigating?

b. How do you interpret the results presented above?

c. What tests would you perform next to determine whether any notable items identified have a valid business reason supporting them?

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Accounts receivable at year-end subject to ADA Cash collection equals accounts receivable Cash collection greater than accounts receivable Cash collection less than accounts receivable No cash collected on December 31, 2022, accounts receivable $2,634,008 2,122,858 100.0% 80.6% 0.0% 418,025 15.9% 3.5% 93,125 $2,634,008 100.0%