Response to the following problem:
In the confirmation of accounts receivable for the Reliable Service Company, 85 positive and no negative confirmations were mailed to customers. This represents 35% of the dollar balance of the total accounts receivable. Second requests were sent for all nonresponses, but there were still 10 customers who did not respond. The decision was made to perform alternative procedures on the 10 unanswered confirmation requests. An assistant is requested to conduct the alternative procedures and report to the senior auditor after he has completed his tests on two accounts. He prepared the following information for the audit files:
1. Confirmation request no. 9
Customer name-Jolene Milling Co.
Balance-$3,621 at December 31, 2013
Subsequent cash receipts per the
accounts receivable master file: January 15, 2014-$1,837
January 29, 2014-$1,263
February 6, 2014-$1,429
2. Confirmation request no. 26
Customer name-Rosenthal Repair Service
Balance-$2,500 at December 31, 2013
Subsequent cash receipts per the
accounts receivable master file
February 9, 2014-$500
Sales invoices per the accounts receivable
master file (I examined the duplicate invoice) September 1, 2013 $4,200
Required:
a. If you are called on to evaluate the adequacy of the sample size, the type of confirmation used, and the percent of accounts confirmed, what additional information will you need?
b. Discuss the need to send second requests and perform alternative procedures for nonresponses.
c. Evaluate the adequacy of the alternative procedures used for verifying the two nonresponses.