You are auditing sales and cash receipts transactions and the related accounts receivable balance for two different companies, each with a balance of \($3,000,000.\) The companies are identical except for the differences specified in situations a throughfbelow. Each situation is to be considered independently.

Required:
For each situation, state the effect of the factor under consideration on negative versus positive confirmation, sample size, time of confirmations, and the particular sample items to select for thh confirmation of accounts receivable.
Give reasons for your answer. State all assumptions you consider appropriate.

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Situation a. Internal control b. Ownership c. Materiality d. First-year versus subsequent-year audit e. Financial health of company f. Composition of accounts receivable Company A Excellent controls over sales, cash receipts, and accounts receivable Closely held company Total current assets equal $15,000,000 First-year audit of company Client is highly profitable and has no problems meeting its financial obligations A small number of large accounts and many small accounts Company B Weak controls over sales and cash receipts Publicly held company Total current assets equal $4,000,000 Fifth-year audit of company Client is losing money and having difficulty paying its bills Many accounts of nearly the same size