Required informationAccounts Receivable ConfirmationsRead the case and answer the questions that follow.Audit standards...Required informationAccounts...

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Accounting

Required information
Accounts Receivable Confirmations

Read the case and answer the questions that follow.

Audit standards require analytical procedures at two stages duringthe audit: at the risk assessment (planning) phase and again at theend of the audit. They are optionally used as a substantiveprocedure during the course of an audit.

CONCEPT REVIEW:

Often times it does not seem to be productive or effective forauditors to send accounts receivable confirmations, yet thestandards require it. It is important that auditors understand howto maximize effectiveness and efficiency in this required auditprocedure.
Read the case. Then answer the questions based onit.
BACKGROUND:
Audit standards indicate that there is a presumption thatauditors will confirm accounts receivable unless the balance isimmaterial, confirmations are deemed ineffective, or the auditors'assessment of risk is low and other procedures will achieve thesame objective. However, these instances are considered few and farbetween and current trends in auditing indicate that there is anexpectation that accounts receivable will be confirmed. Auditorsmay stratify the population, use haphazard or judgmental sampling,and send positive or negative requests.
Jenner & Jenner CPAs are the auditors for the Leno Company.In reviewing the accounts receivable aging, the auditors learn thatthere is a high number of accounts with balances, there are somevery large and very small balances, and many customers' balancesconsist of multiple invoices.
1. Should Jenner & Jenner CPAs send accounts receivableconfirmations?
2. How should the auditors mitigate the risk associated withboth very large and very small balances?
3. Because so many customer balances consist of multipleinvoices, what could the auditors do to eliminate unnecessaryreconciliation?
4. What procedures can be performed on customers who do notrespond?

Answer & Explanation Solved by verified expert

3.8 Ratings (619 Votes)

1 As per Standards on Auditing505 External confirmations It is necessary to obtain external confirmations for the auditors If its not possible any of reason then alternative procedure must be applied to reduce the risk Thus Jenner Jenner CPAs should send accounts receivable confirmations 2 There are two type of confirmations i Positive confirmation request A request that the confirming party responds directly to the auditor indicating whether See Answer

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In: AccountingRequired informationAccounts Receivable ConfirmationsRead the case and answer the questions that follow.Audit standards...Required informationAccounts Receivable ConfirmationsRead the case and answer the questions that follow.Audit standards require analytical procedures at two stages duringthe audit: at the risk assessment (planning) phase and again at theend of the audit. They are optionally used as a substantiveprocedure during the course of an audit.CONCEPT REVIEW:Often times it does not seem to be productive or effective forauditors to send accounts receivable confirmations, yet thestandards require it. It is important that auditors understand howto maximize effectiveness and efficiency in this required auditprocedure.Read the case. Then answer the questions based onit.BACKGROUND:Audit standards indicate that there is a presumption thatauditors will confirm accounts receivable unless the balance isimmaterial, confirmations are deemed ineffective, or the auditors'assessment of risk is low and other procedures will achieve thesame objective. However, these instances are considered few and farbetween and current trends in auditing indicate that there is anexpectation that accounts receivable will be confirmed. Auditorsmay stratify the population, use haphazard or judgmental sampling,and send positive or negative requests.Jenner & Jenner CPAs are the auditors for the Leno Company.In reviewing the accounts receivable aging, the auditors learn thatthere is a high number of accounts with balances, there are somevery large and very small balances, and many customers' balancesconsist of multiple invoices.1. Should Jenner & Jenner CPAs send accounts receivableconfirmations?2. How should the auditors mitigate the risk associated withboth very large and very small balances?3. Because so many customer balances consist of multipleinvoices, what could the auditors do to eliminate unnecessaryreconciliation?4. What procedures can be performed on customers who do notrespond?