Question

As part of the fieldwork of an audit engagement, the senior on the audit obtained and documented an understanding of the company's internal control relating to accounts receivable and assessed control risk related to accounts receivable at the maximum level. Alejandro, the staff person assigned to the engagement, requested and obtained from the company an aged accounts receivable schedule listing the total amount owed by each customer as of December 31, 2017, and sent positive confirmation requests to a sample of the company customers. Review Alejandro's comments on each of the following five confirmations and determine the best conclusion and/or follow-up procedures for each item. Assume that each confirmation has been signed with the appropriate signature unless otherwise noted.

A) February 1, 2018

Fish & Ski World, Inc.
5660 Ocean Blvd.
Port Arkansas, Texas 78373
Re: Balance at December 31, 2017 - $72,000
Dear Sirs:
As of December 31, 2017, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Aquatic Jet Products, Inc.

The above balance is	Correct
X	Incorrect (show amount)	$163,000

If incorrect, please provide information that could help to reconcile your account.

  

Response: Per our records, the following invoices are outstanding:
Invoice #4212	$72,000
Invoice #4593	$66,000
Invoice #4738	$25,000

Signature	Title
	Date

Alejandro's note to file:

  

Invoices #4593 and 4738 are not on the A/R aging report at December 31, 2017.

B)

February 1, 2018
NC Boating Center, Inc.
110 Windward Blvd.
Tierra Verde, Florida 33715
Re: Balance at December 31, 2017 - $239,000
Dear Sirs:
As of December 31, 2017, our records indicate your balance with our company as the amount listed above. Please complete and sign the bottom portion of this letter and return the entire letter to our auditors, JS LLP, PO Box 100, Orlando, Florida 32806.
A stamped, self-addressed envelope is enclosed for your convenience.
Sincerely,
Aquatic Jet Products, Inc.

  

The above balance is	Correct
	Incorrect (show amount)	$

If incorrect, please provide information that could help to reconcile your account.

  

Response: We cannot determine the balance due at December 31, 2017.

Signature	Title
	Date

Alejandro's note to file:

  

No amount was confirmed on the response letter.

Answer 1

In Confirmation A) Alejandro has commented as:-

Alejandro's note to file:

Invoices #4593 and 4738 are not on the A/R aging report at December 31, 2017.

which means that these invoices are not booked and hence must be considered for reconciliation.

Further we need to find the reason of not booking them as well as their copy must be maintained with us.

In Confirmation B) Alejandro has commented as:-

Alejandro's note to file:

No amount was confirmed on the response letter.

In this case we can ask for our account in their books and then reconcile the difference at our end.

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