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You have been assigned to the first audit of the Chicago Company
for the year ending March 31, 2013. Accounts receivable were confirmed on December 31,
2012, and at that date the receivables consisted of approximately 200 accounts with
balances totaling $956,750. Fifty of these accounts with balances totaling $650,725 were
selected for confirmation. All but 10 of the confirmation requests have been returned; 24
were returned without any exceptions, 6 had minor differences that have been cleared
satisfactorily, and 10 confirmations had the following information and comments:
1. We are sorry, but we cannot answer your request for confirmation of our account
as the PDQ Company uses an accounts payable voucher system and can only
confirm individual invoices.
2. The balance of $1,050 was paid on December 28, 2012.
3. The balance of $7,750 was paid on January 5, 2013.
4. The balance of $2,975 was paid on December 13, 2012.
5. We do not owe you anything at December 31, 2012, as the goods, represented by
your invoice dated December 30, 2012, number 25050, in the amount of $11,550,
were received on January 5, 2013, on FOB destination terms.
6. An advance payment of $2,500 made by us in November 2012 should cover the two
invoices totaling $1,350 shown on the statement attached.
7. This confirmation was returned as undeliverable by the post office.
8. We are contesting the propriety of this $12,525 charge. We think the charge is
excessive.
9. We do not owe this balance as our agreement with the company allows us to return
any unsold goods without penalty. Amount okay. As the goods have been shipped
to us on consignment, we will remit payment upon selling the goods.
10. Your credit memo dated December 5, 2012, in the amount of $440 cancels the
balance above.
a. Indicate which of these confirmation responses likely represent timing differences.
b. Which of the ten confirmation responses likely represent a misstatement? Explain
why the response indicates a misstatement.
c. For each of the 10 confirmation responses, indicate the procedures you would
perform to determine whether the exception is a misstatement or has been
appropriately recorded by the client.*

Respuesta :

the procedures I would perform to determine whether the exception is a misstatement or has been appropriately recorded by the client.*

a. The confirmations 2 and 3 represent timing differences. For 2, the amount would have received after 31st December. For 3, the amount was paid in the next period however the balance was outstanding on 31st December.

b. The confirmation no's 4, 5, 6, 9 and 10 represent misstatement as follows

- Confirmation 4. The balance has been paid on 13 dec'12 which means there is enough time for remitting money. However, the balance has not been adjusted and the effect of the receipt may have been given wrongly.

- Confirmation 5.  The revenue has been accounted on dispatch from plant whereas it needs to accounted at the time when they reach the port of shipment. The receivable is actually not due as on date of confirmation.

- Confirmation 6. The receivable needs to be knocked off against the invoice

- Confirmation 9. The revenue cannot be accounted till the same is sold by consignee. Thus the receivalbe ceases to exist

- Confirmation 10. The receivable invoice needs to be knocked off against the credit memo.

c.

Confirmation  Statement                                    Audit procedures

1 We are sorry, but we cannot answer your request for confirmation of our account as the PDQ Company uses an accounts payable voucher system and can only confirm individual invoices. Resend the confirmation with the list of invoices or confirm on telephone

2 The balance of $1,050 was paid on December 28, 2012. Check the bank statements

3 The balance of $7,750 was paid on January 5, 2013. Check the bank statements

4 The balance of $2,975 was paid on December 13, 2012. Check the bank statements and conduct ledger scrutiny to identify where payment voucher posted

5 We do not owe you anything at December 31, 2012, as the goods, represented by your invoice dated December 30, 2012, number 25050, in the amount of $11,550, were received on January 5, 2013, on FOB destination terms. Check shipping documents. Also conduct a process review of the entire revenue accounting process to understand the root cause of such accounting errors

6 An advance payment of $2,500 made by us in November 2012 should cover the two invoices totaling $1,350 shown on the statement attached. Conduct ledger scrutiny of advances received and ensure that amounts are rightly knocked off

7 This confirmation was returned as undeliverable by the post office. Review the customer master and check documents of all invoices posted against this customer

8 We are contesting the propriety of this $12,525 charge. We think the charge is excessive. Understand the terms of agreement. Identify the transaction and if required, suggest management to create a provision

9 We do not owe this balance as our agreement with the company allows us to return any unsold goods without penalty. Amount okay. As the goods have been shipped to us on consignment, we will remit payment upon selling the goods. Check agreement with consignee. Also conduct a process review of the entire revenue accounting process to understand the root cause of such accounting errors

10 Your credit memo dated December 5, 2012, in the amount of $440 cancels the balance above. Conduct ledger scrutiny of customer accounts and ensure that amounts are rightly knocked off

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