Your firm has been engaged to audit the financial statements of RST Inc. for the year ending December 31. RST Inc. is a medium-sized manufacturing company that has approximately 400 trade accounts receivable and does not prepare monthly statements. The manager assigned to the audit has decided to circularize the trade accounts receivable as of September 30 (three months before year-end). The senior on the job asks you to be at the company on October 1 to mail requests for confirmation. He tells you to ask the company's personnel to prepare 25 positive confirmation requests and 100 negative confirmation requests. These sample sizes are based on a sampling plan developed by the senior. He further asks you to obtain an aged trial balance as of September 30, to trace the balances of the accounts to the trial balance from the subsidiary ledgers, to test the aging, to foot the trial balance, and to compare the total of the trial balance with the accounts receivable control account in the general ledger. The senior also informs you that detailed tests of sales and cash receipts will be made.

Required:

a. Enumerate the types of accounts you would want to include in your selection of accounts to be circularized by the positive method.

b. Enumerate the types of accounts you would want to include in your selection of accounts to be circularized by the negative method.

c. Outline a plan for maintaining adequate control over confirmation requests.

d. Outline the additional audit steps that should be undertaken at December 31 in support of the amounts shown as accounts receivable; the company is preparing for your use an aged trial balance of accounts receivable as of that date.

(Used with permission of Ernst \& Young)