You have been assigned to audit the sales and accountsreceivable balances of Coppero Engineering Ltd. for the year endedSeptember 30, 2020. Coppero Engineering is a major manufacturer ofsteel parts and fixtures for other manufacturers in the engineeringfield. The interim work was undertaken in June 2020 and testsindicated that internal controls over sales and accounts receivableare effective and that therefore control risks are acceptable.
You observe that credit sales are made to a group of 2,500active customers, located in Canada and the United States.Approximately 30 percent of the customers represent 70 percent ofthe balances, and although most of these customers are in Canada, anumber are also based in the United States, England, and Ireland.The sales made into the United States are invoiced in Canadiandollars and you note that the value of the Canadian dollar hasescalated by 30 percent in recent months. The total of the accountsreceivable balances at September 30 is $95 million and the currentallowance for doubtful accounts is $500,000.
Sales and receipts are recorded on the company's computerizedaccounting system, which simultaneously updates the accountsreceivable balances and sales and cash receipts transactionsjournals on a daily basis. On a weekly basis, an aged trial balanceis generated, which is reviewed by the credit manager forslow-paying accounts. Follow-up action is then taken as necessary.Sales returns and bad debt write-offs are processed and summarizedweekly and any write-offs have to be approved by the chieffinancial officer, based on the recommendations of the creditmanager. Documents to support these write-offs are kept onfile.
After the end of the reporting period, the rising Canadiandollar and a financial crisis in two of the major American marketshave caused some concern for the credit manager, who has recentlyjoined the client after a number of years in the retailingindustry. Also, rising interest rates in Canada and a slowingeconomy have affected sales growth in the Canadian market.
Required
You are asked to prepare an audit program to test CopperoEngineering's year-end accounts receivable. You are required toinclude in your program specific audit objectives you can testusing the audit firm's new generalized audit software package. Yourmanager is particularly worried about the possible negative effectson the collectibility of accounts receivable because of theAmerican financial crisis, the rising dollar, and the slowingCanadian economy.
