Wellman, a public accountant, is auditing the financial statements of a manufacturing company with a significant amount of trade accounts receivable. Wellman is satisfied that the accounts are properly summarised and classified and that allocations, reclassifications and valuations are made in accordance with accounting standards. Wellman is planning to use accounts receivable confirmation requests to satisfy the balance-related audit objective of existence related to trade accounts receivable.

REQUIRED

a. Identify and describe the two forms of accounts receivable confirmation requests, and indicate what factors Wellman will consider in determining when to use each. (Hint: Refer to relevant ASA here.)

b. Assume that Wellman has received a satisfactory response to the confirmation requests. Why does a satisfactory response not satisfy the realisable value audit objective? Describe how Wellman can evaluate collectability of the trade accounts receivable.

c. What are the implications to the auditor if, during the audit of accounts receivable, some of the client's trade customers don't respond to a request for positive confirmation of their accounts?

d. What auditing steps should an auditor perform if there is no response to a second request for a positive confirmation?