Brock UniversityACTG 4P61ACTG-4P61-Spring-2013-Mid02-Solution ( ALL ANSWERS CORRECT )

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Question 1: (15 marks) Jane Parry, CPA, believes that two customers of Foghorn Corporation may not be able to respond to a confirmation request because of the nature of their accounting system (that... is the customer uses a voucher system). Required: a. (5 marks) Should Parry send a confirmation request to the two customers or apply alternative procedures without sending a request? Yes. (2) Parry should consider using a different form of confirmation request for those customers she anticipates are unable to reply to the typical account balance confirmation form. (2) This confirmation should list the outstanding invoices. (2) This approach views accounts receivable as a large number of unpaid invoices, or open items, rather than an account balance. b. (5 marks) What are the implications if, during the examination of accounts receivable, some of Foghorn’s other customers do not respond to a request for positive confirmation of their accounts? Parry cannot assume with confidence that these customers checked the request, found no disagreement, and therefore did not reply. (2) Some busy customers will not take time to check confirmation requests and will not respond. Thus obvious exceptions may exist without being reported to her. (2) In the case of fraud or embezzlement, the perpetrator could perhaps prevent exceptions from being reported and prevent letters addressed to fictitious addresses from being returned from the post office as undeliverable. (2) Confirmations returned as undeliverable by the post office will require appropriate action to obtain better addresses.(2)Accounting 4P61 Mid-Term 2 Spring 2013 3 of 15 If there is suspicion of error or fraud the sample size will have to increase. (2)c. (5 marks) What auditing steps should Parry perform if there is no response to a second request for a positive confirmation? [Show More]

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