1. AICPA and PCAOB auditing standards address the confirmation of accounts receivables. Under the currently effective standards, what are the circumstances under which confirmation of accounts receivable is not required? Cite the relevant standards (including the specific paragraphs) for both public and private companies.
2. Read PCAOB 2310, making note of what it says about the confirmation process. Put yourself in the position of a first-year auditor that is in charge of sending out confirmations. For each of the items below, indicate whether it is okay to do the step and explain why.

Procedure related to confirmations	Is this okay (Yes/No)	Explain why
1) Ask the client to help draft the confirmation letters (i.e., fill in contact name, address, and balance) as long as you double check the information after it is done.
2) Give the confirmations to the accounts receivable manager to put in the client's outgoing mail.
3) Instruct customers to return the confirmation to the client's address.

3. Responses are often not received for positive confirmation requests. What should the auditor do if an accounts receivable confirmation response is not received? Give specific examples of things the auditor should do (under the currently effective standard).

4. The PCAOB has recently adopted a new standard for AS 2310, which will be effective for audits of financial statements for fiscal years ending on or after June 15, 2025. Read PCAOB Release No. 2023-008Links to an external site., Section 1, Executive Summary. What are the key provisions of the new standard? Why the board is adopting these changes?

5. Per Lilts Berger & Associates CPAs "Evaluation and Disposition of Misstatements" policy in the Appendix of Assignment 6, if misstatements are identified during the audit, it is necessary to evaluate whether the misstatement is indicative of a deficiency in internal control, and whether additional testing is necessary to accumulate sufficient appropriate audit evidence.

A. What are the misstatements, if any, that were identified within the Accounts Receivable balance? For each misstatement, identify the relevant control that appears to have failed within the table below.

• You can leverage the flowchart on 11-2 and the Questionnaire on 11-3 for the identification of the A/R controls. If you identify an existing control that has a misstatement associated with it, that would be a deficiency in "Operation". If you notice for any of the A/R misstatements that there does not appear to be an associated control within the Questionnaire or Flowchart, please describe the "lack of control" or "expected control" and indicate "Design" in column 4.
• Hint: For Accounts Receivable, there are some controls on WP 11-2 and 11-3 that appear relevant to at least one of the misstatements identified. However there is also a theme indicating potential needed controls (or enhancement of controls) that don't appear to be specified in those workpapers. Try and identify that "theme" of some or all of the misstatements identified, in order to identify whether the deficiencies can be "isolated" to certain pieces of the population in determining magnitude of the potential misstatement, or if the full account is exposed.
• Note: if the full balance has been calculated, it is not a "potential" misstatement but rather a "known" misstatement. However, if only a sample of the balance has been tested, it is a "potential" misstatement that you need to assess the magnitude of (how much of the account is exposed to the types of deficiencies identified?) You may want to ask the client questions in the next section to help finalize the answer to this question.
• For any theme you identify, include a control you feel relates to it within column 3 below and indicate Design v. Operation accordingly (based on what we know so far in the case from the two workpapers listed above).
• Allowance for Doubtful Accounts has been filled out for you as an example below.

Account Balance	Total (Projected) Misstatement ("0" if none)	Control(s) that appear to have failed	Deficiency in Design or Operation?
Allowance for Doubtful Accounts	31,706	Year-end adjustment & review of allowance for doubtful accounts and recording of adjustment on the Trial Balance in line with company accounting policy	Design (unless clarified by the client what caused the error / what controls do exist in questions below); otherwise, Operation
Accounts Receivable

B. Often times, concluding on the severity of a deficiency requires a conversation with the client. What are some questions that you might ask the client in order to assess the severity of any potential control deficiencies identified (CD, SD, MW)? Include at least one question per misstatement. What might you be looking to understand around likelihood and magnitude of the potential misstatement in order to conclude on severity of the control deficiency?

1. Allowance
   • Questions: What are the controls in place around this process? What caused this error? (Stale data used for calculation, calculation not performed in the current year, calc was performed but Trial Balance wasn't updated for the calc, etc.)
   • Considerations around CD, SD, MW: We are looking to understand why this adjustment was missed: what controls are in place around this calculation, and which control failed in the process. In considering likelihood and magnitude, while it is "likely" a misstatement would occur (since it did occur), since we know the exact calculation for the allowance, based on company policy, the full balance can be calculated, and the difference between our calculated allowance and that recorded per the client = the "magnitude" of the actual misstatement. Therefore, we will likely conclude a CD that does not rise to the level of SD or MW in light of materiality of the known misstatement.
2. Accounts receivable
   • Questions:
   • Considerations: