How much reliance you will place on this oral evidence you have acquired from Brad Parker
Parker states that the sales representatives are paid on a commission basis. Comment on whether or not this affects the risk of misstatement.
Suggest reasons why you believe that the average age of Accounts Receivables has gone up
What are the weaknesses of the bad debt expense policy (Discuss at least 2)
Suggest ways to improve the bad debt expense policy
Why do you believe that there has been an increase in the write-off of bad debts this year?
Comment on the strengths and weaknesses of the overall control over receivables
Judging from the conversation with Parker, do you think you would recommend testing the controls? Why or why not?
Suggest an audit strategy for auditing receivables. Your strategy should include
Whether it is going to be a substantive or reliance strategy
The timing of your audit tests (assume that interim tests could be carried out in November or year-end tests at the end of December)
Extent of audit testing (more or less tests)
Whether or not you will confirm accounts receivables and if so, the nature of confirmations)
What type of evidence will be provided by the confirmations and its level of reliability
Assume that you do decide to confirm accounts receivable, explain how you would go about the task. In your explanation be sure to address
Any sampling procedures you would use and how you would reduce sampling risk
How you would handle the sending of the confirmations and the receipt of any responses
How you would handle non-responses
How you would handle exceptions
In addition to the assertion that you would test by performing the confirmations, state and discuss one other assertion which you would consider testing and explain the procedures you would use to test it