In the audit of accounts receivable at XYZ company (the client), the gross amount (i.e. not including Allowance for doubtful debt) presented on the financial statement is $700,000 which includes customer A ($300,000) and company B ($400,000). The balance of Allowance for doubtful debt account is zero.

You are the auditor and you are asked to check the accounts receivable account.

a. You are instructed by your audit manager that you should send a confirmation letter to each customer A and B requesting them to confirm the amount they owed to your client. State the type of audit procedure you are asked to take?  

b. In a reply, customer A informed you that he had paid an amount of $100,000 before the financial year. You discuss this with the client and found out that it is client's mistake for not recording the amount received in the accounting book. What management assertion is violated (or at risk). What is the correct amount that customer A owed to your client at the end of the year?  

c. In a reply, company B informed you that B was in the process of filing for liquidation (i.e. bankrupt) before the financial year end and B had informed your client of this matter. You have determined that based on the relevant accounting standard your client should have made Allowance for doubtful debt of $4

d. What would you do if the client admitted the two errors in and  but did not want to adjust the financial statements while your audit manager has set the materiality for AR account as 450,000? 00,000 (whole amount) for company B. Given that your client did not make any Allowance for doubtful debt for company B, determine which management assertion is violated (or at risk).

Answer rating: 100% (QA)

a The audit procedure that should be taken is confirmation of accounts receivable This involves send... View the full answer