Response to the following problem:
You have been assigned to the first audit of the Chicago Company for the year ending March 31, 2013. Accounts receivable were confirmed on December 31, 2012, and at that date the receivables consisted of approximately 200 accounts with balances totaling $956,750. Fifty of these accounts with balances totaling $650,725 were selected for confirmation. All but 10 of the confirmation requests have been returned; 24 were returned without any exceptions, 6 had minor differences that have been cleared satisfactorily, and 10 confirmations had the following information and comments:
1. We are sorry, but we cannot answer your request for confirmation of our account as the PDQ Company uses an accounts payable voucher system and can only confirm individual invoices.
2. The balance of $1,050 was paid on December 28, 2012.
3. The balance of $7,750 was paid on January 5, 2013.
4. The balance of $2,975 was paid on December 13, 2012.
5. We do not owe you anything at December 31, 2012, as the goods, represented by your invoice dated December 30, 2012, number 25050, in the amount of $11,550, were received on January 5, 2013, on FOB destination terms.
6. An advance payment of $2,500 made by us in November 2012 should cover the two invoices totaling $1,350 shown on the statement attached.
7. This confirmation was returned as undeliverable by the post office.
8. We are contesting the propriety of this $12,525 charge. We think the charge is excessive.
9. We do not owe this balance as our agreement with the company allows us to return any unsold goods without penalty. Amount okay. As the goods have been shipped to us on consignment, we will remit payment upon selling the goods.
10. Your credit memo dated December 5, 2012, in the amount of $440 cancels the balance above.
Required
a. Indicate which of these confirmation responses likely represent timing differences.
b. Which of the ten confirmation responses likely represent a misstatement? Explain why the response indicates a misstatement.
c. For each of the 10 confirmation responses, indicate the procedures you would perform to determine whether the exception is a misstatement or has been appropriately recorded by the client.