You have been assigned to audit the notes receivable of a medium-size audit client, Eagle River Distributing. The notes receivable account is new this year and per discussion with the controller, it came about because three major customers were experiencing payment difficulties. The three customers account for approximately 15% of the client’s annual sales. The account was first used in July with a $300,000 balance and now has a year-end balance of $2.5 million (this compares to an accounts receivable yearend balance of $6.0 million).
On further investigation, you determine that the year-end balance is composed of the following notes:
J.P. MacArthur Printing, 10%, due July 1 of next year $1.2 million
Stevens Point Newspaper, 11%, due Sept. 30 of next year $0.8 million
Orbison Enterprises, 12%, due in 18 months $0.5 million
You further discover the following:
1. Orbison Enterprises is a company wholly owned by the president of Eagle River Distributing and is backed by the personal guarantee of the president (including the pledging of personal assets).
2. The company continues to make sales to each of these companies. The notes represent a consolidation of previous outstanding receivables. All three companies are current in their payments of existing receivables.

Required
a. Identify any special risk concerns that you might have regarding the audit of this new account.
b. Identify the major assertions to be tested by the auditor in auditing this account. For each assertion, identify one or two auditing procedures that could be used to gather evidence in determining the correct financial statement presentation of the account.