Need By Tomorrow Accounts Receivable Confirmation Assignment

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Need by tomorrow Accounts Receivable Confirmation Assignment. You are conducting the audit of Superior Company as of December 31, 2021. The following accounts receivable confirmations (attached above) were sent out by you and returned to you from Superior’s customers. Based on the customer’s comments, indicate what action you would take.

Paper For Above instruction

The task involves analyzing the responses received from customers regarding their accounts receivable confirmations during the audit of Superior Company as of December 31, 2021. The confirmations sent include inquiries to clients about the accuracy of their outstanding balances, and their responses include various comments which require assessment to determine appropriate audit procedures.

When conducting an audit, confirmations provide critical evidence about the existence and accuracy of receivables. However, the interpretations of customer responses may vary based on their comments, potentially indicating discrepancies, disagreements, or errors. As an auditor, it is essential to evaluate each response carefully, consider the explanations provided, and perform follow-up procedures as necessary to resolve uncertainties or discrepancies.

The specific responses from customers in the attachments include several common scenarios that require professional judgment regarding whether to accept the confirmations at face value, investigate further, or perform alternative procedures. For example, if a customer confirms the balance but notes a disagreement or a disputed amount, additional audit steps may include requesting supporting documentation, verifying subsequent payments, or reconciling account details with the client’s records.

In this exercise, several responses from customers such as Baker Company, Clark Retailing, Grove Retailing, Atom Company, and Hall Enterprise need to be reviewed. Appropriate actions depend on the comments provided, such as whether the customer confirms an exact balance, disputes it, or indicates a need for further explanation. For each case, the auditor must decide whether to adjust the financial statements, perform additional verification, or note the dispute as a significant audit finding.

The process also involves considering the materiality of the discrepancies, assessing the risk of misstatement, and discussing potential adjustments with management. If a customer disputes the amount outstanding, the auditor may need to extend procedures, such as confirming subsequent payments, reviewing credit memos, or investigating timing differences.

Furthermore, the auditor must evaluate whether the responses suggest a need for a provision for doubtful accounts or allowances for uncollectible receivables. Disputed or unconfirmed balances may also impact the overall assessment of the accuracy of the receivables reported at the year-end. Proper documentation of the auditor’s evaluation and the reasons for the proposed actions is crucial for audit quality and compliance with auditing standards.

Overall, the responses from customers serve as evidence that, when properly evaluated, can substantiate or challenge the recorded receivables. The auditor’s next steps should align with auditing standards, focusing on gaining sufficient appropriate evidence to form an opinion on whether the financial statements fairly present the company’s financial position regarding accounts receivable.

References

American Institute of Certified Public Accountants. (2020). AU-C Section 330: The Auditor’s Responses to Assessed Risks. AICPA.

Arens, A. A., Elder, R. J., & Beasley, M. S. (2020). Auditing and Assurance Services (16th ed.). Pearson.

Canada. (2021). Canadian Auditing Standards (CAS 505): External Confirmations. CPA Canada.

Knechel, W. R., Salterio, S. E., & Kochel, N. (2019). Auditing: Assurance and Risk (4th ed.). Routledge.

Louwers, T. J., Ramsay, R. J., Sinason, D. H., & Strickland, D. (2021). Auditing & Assurance Services (7th ed.). McGraw-Hill Education.

Public Company Accounting Oversight Board (PCAOB). (2021). AS 2105 – Audit Evidence.

Rezaee, Z. (2019). Financial Statement Fraud: Prevention and Detection. John Wiley & Sons.

Sudarshan, R., & Sharma, R. (2022). Risk Management in Auditing. Springer.

Vance, A. (2020). Auditing and Accounting Guide: Confirmations. Wiley.

Whittington, R., & Pany, K. (2020). Principles of Auditing & Assurance. McGraw-Hill Education.