You are the audit senior working on the audit of Tesco Ltd for the year ended 30 June 2020. While completing your risk assessment of Tesco, you note that the company appears to have a significant debt-recovery problem. The majority of Tesco’s accounts receivable are outstanding for more than 60 days. Tesco’s provision for doubtful debts is currently calculated at 1 per cent of accounts receivable at month-end. In the previous two financial years, Tesco wrote off $380 000 and $425 000 worth of accounts receivable, respectively. In those years, sales were $3 500 000 and $5 650 000, respectively.

REQUIRED:

(A) Identify the two key assertions most at risk of material misstatement in relation to accounts receivable and provide explanation why each of these assertions is at risk. (4 marks)

(B) Describe the substantive procedures you will perform at year end to obtain sufficient audit evidence for each assertion identified in (A). (3 marks)