Dolphin Surf & Leisure Holidays Pty Ltd (Dolphin) is a resort company based on the Great Barrier Reef. Its operations include boating, surfing,
diving and other leisure activities, a backpackers’ hostel, a family hotel and a five-star resort. Justin and Sarah Morris own the majority of the shares in the Morris Group which controls Dolphin. Justin is the chairman of the board of directors of both Dolphin and the Morris Group, and Sarah is a director of both companies as well as the CFO of Dolphin. 

While performing the Dolphin audit you discover that the XXXX Travel Agency, which specialises in group travel to Queensland, has an account with Dolphin. The review of the ageing of the accounts receivable balance shows that XXXX Travel Agency’s balance is large and material and is now more than 60 days overdue. However, no allowance has been made for the outstanding debt. You consult Dolphin’s accounts staff, Julie and Kristen, about the account and they mention that there are rumours that the XXXX Travel Agency is suffering financial difficulties. You have recently completed the Audit & Assurance section of the Chartered Accountants Program and are aware that ASA 230 has specific requirements about documenting audit work. In particular, paragraph 9 states:

In documenting the nature, timing and extent of audit procedures performed, the auditor shall record:

(a) The identifying characteristics of the specific items or matters tested

(b) Who performed the audit work and the date such work was completed

(c) Who reviewed the audit work performed and the date and extent of such review.

In addition, paragraph 10 states:

The auditor shall document discussions of significant matters with management, those charged with governance, and others, including the nature of the significant matters discussed and when and with whom the discussions took place.

Required

Explain how you would apply the mandatory requirements of the noted paragraphs of ASA 230 in relation to the potential bad debt.