You have been assigned to audit the sales and accounts receivable balances of Coppero Engineering Ltd. for

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You have been assigned to audit the sales and accounts receivable balances of Coppero Engineering Ltd.

for the year ended September 30, 2023. Coppero Engineering is a major manufacturer of steel parts and fixtures for other manufacturers in the engineering field. The interim work was undertaken in June 2023 and tests indicated that internal controls over sales and accounts receivable are effective and that therefore control risks are acceptable.

You observe that credit sales are made to a group of 2,500 active customers, located mainly in Canada and the United States. Approximately 30 percent of the customers represent 70 percent of the balances, and although most of these customers are in Canada, a number are also based in the United States, England, and Ireland. The sales made into the United States are invoiced in Canadian dollars and you note that the value of the Canadian dollar has escalated by 10 percent in recent months. The total of the accounts receivable balances at September 30 is $95 million and the current allowance for doubtful accounts is $500,000.

Sales and receipts are recorded on the company’s computerized accounting system, which simultaneously updates the accounts receivable balances and sales and cash receipts transactions journals on a daily basis. On a weekly basis, an aged trial balance is generated, which is reviewed by the credit manager for slow-paying accounts. Follow-up action is then taken as necessary. Sales returns and bad debt write offs are processed and summarized weekly and any write offs have to be approved by the chief financial officer, based on the recommendations of the credit manager. Documents to support these write offs are kept on file.

After the end of the reporting period, the rising Canadian dollar and a financial crisis in two of the major American markets have caused some concern for the credit manager, who has recently joined the client after a number of years in the retailing industry. Also, rising interest rates in Canada and a slowing economy have affected sales growth in the Canadian market.

Required You are asked to prepare an audit program to test Coppero Engineering’s year-end accounts receivable. You are required to include in your program specific audit objectives you can test using the audit firm’s new generalized audit software package. Your manager is particularly worried about the possible negative effects on the collectibility of accounts receivable because of the American financial crisis, the rising dollar, and the slowing Canadian economy.

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Auditing A Practical Approach

ISBN: 9781119709497

4th Canadian Edition

Authors: Robyn Moroney, Fiona Campbell, Jane Hamilton, Valerie Warren

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