When testing Account Receivables of Mitchell Ltd, you have selected debtors with over a $2,000 balance to
Question:
When testing Account Receivables of Mitchell Ltd, you have selected debtors with over a $2,000 balance to send Account Receivable confirmations. You sent 20 positive confirmations and identified the following issues. The financial year-end is 31 December 2021.
1) The book value of the receivables for Gamma was 2,043 on 31 December 2021. However Gamma disputed the entire receivables balance because they did not receive the products until 5 January 2022, Gamma ordered the goods on 28 December 2021.
2) Delta disputed the entire receivables balance of $3220 because they claimed that the balance had been paid on 30 December 2021. 31 The book value of the receivables for Epsilon on 31 December 2021 was $4050.
However, no response was received from this customer. No payments were received from this customer in January 2022 The confirmation letter to Beta was returned with the debtor's signature, but with no indication whether they agree or disagree with the balance. Beta's account receivable balance was 5,600 in Mitchell's accounts.
Required: For each issue,
Describe a potential reason for each issue.
Discuss two further audit procedures to be carried out to determine whether an error exists in Mitchelfs account receivables.
Auditing a risk based approach to conducting a quality audit
ISBN: 978-1133939153
9th edition
Authors: Karla Johnstone, Audrey Gramling, Larry Rittenberg