Question

It’s Audit related. The confirmation paper are in order. Your help is greatly appreciated, thank you very much!!

PS: this assignment is due in a few hours.

Accounts Receivable Confirmations You work at the accounting firm of Willis & Adams and have been asked to complete the test of details on accounts receivable for the 2014 audit of Earth Wear Clothiers, Inc. (the audit client). The primary test involves sending confirmations to customers so that they can confirm the amount that they owe to Earth Wear as of December 31, 2014. The remaining three confirmations require your review because they were returned with notes from customers indicating a potential misstatement. You are required to complete the excel workpaper (workpaper 10-1); complete all empty boxes and initial off on the workpaper to indicate to the audit team who completed the work. In the "reason for the difference column", be sure to explain the reason for the difference in appropriate detail. An audit senior/manager reviewing your work should be able to clearly understand what the issue was. The customer statements were sent with the confirmation as a reminder to the customer of the balance owed; this does not mean that the client's records are always correct. For each item confirmed you will also see a memo with documentation from the client to the auditor. Be sure to look at the returned confirmation, customer statements, and the memo's (including the notes on the memo's) in order to complete the A/R testing and determine if there are any misstatements in the client's records at year-end. You are also required to answer the questions below. 1. What specific type of A/R confirmation did the accounting firm use for this audit? Does the A/R account balance at 12/31/2014 need to be increased, decreased, or no change? 2. 3. Would this be a debit, credit, or no change?

Answer 1

The following is the excel sheet which can be used for this situation:

1. The company used external confirmations - positive confirmation request in this case.

2. The A/R balance stated at the year end need to decreased by $9

3. It should be credited to A/R balance.