SD21

18. (b) - TRCL

Nile Co:
- for the non-response from Nile Co, send another a follow-up circularisation letter, with
client’s permission
- if still got no responses, with client’s permission, telephone the customer and ask them
whether or not they can give response by writing to the confirmation request

Congo Co:
- investigate the differences whether it is due to timing differences or possible error in the
aacount balances record of Danube Co
- if it is due to timing differences, such as cash in transit, details of the difference should be
agreed to the post year-end cashbook to the receivables balance to confirm cash receipts
MJ21
18. (b) - TR

- discuss with the management of Purrfet Co on why no allowance is provided for Ellah Co’s
outstanding amount and assess the justification
- recalculate the outstanding $2.6m balances from Ellah Co to ensure accuracy
- review the post year-end cashbook to identify any cash receipts from Ellah Co to establish
how much the debt is recovered and to assess how much the remaining balance at the year-
end
- review correspondence with Ellah Co to identify if there any discussion of payment
difficulties and whether Ellah Co has any intention to fully pay their debt
- inspect the board minutes to identify if there are any significant concern on the payment
from Ellah Co
MJ20
18. (b) - TR valuations

- obtain a schedule of all trade receivable, cast it and agree closing balances to the general
ledger, trial balance and draft financial statements
- review the aged receivables report to identify any slow-moving balances and discuss with
management/credit controller why it has not been written off whether the customer will
pay or allowance need to be provided
- select a sample of goods despacth note right before and after the year-end and follow
through inclusion to the correct period receivable balance to ensure correct cut-off
- review the board minutes to identify any significant concern relating to payment from one
of their customers outstanding receivable balance and assess whether allowance is
reasonable
- review the post year-end cashbook to identify whether there are any cash receipts for the
slow moving receivable balances
SD19
16. (d) - TR valuations

- review the age receivable reports to identify any slow-moving receivable balance and if any
discuss with the management of Harlem Co on whether the customer will or allowance is
required
- review the board minutes to identify if there any significant concerns in relation to payment
from customers
- review correspondence with the significant customer and others to identify if they have
discuss payment difficulties or any balance in dispute or if they have the intention to fully
settle their debts
SD19
18. (a) - TRCL

Albacore Co:
- for the non-response from Albacore Co, with client’s permission, send another follow-up
confirmation letter to Albacore Co
- if there are still no response after sending the follow-up letter, with client’s permission, the
senior auditor should telephone the customer and ask them whther they could give respond
in writing for the confirmation balance
- if there is no response at all, the audit team should consider to carry out analytical
procedure to confirm balance owing from Albacore Co. such as detailed testing of the
balance by agree to the sales invoice and good despatch notes.

Flounder Co:
- investigate whether the differences of Flounder Co balances are due to timing difference or
there is a possible error in the Triggerfish Co records
- if it is due to the timing difference, such as cash in transit, agree the differences to the post
year-end cashbook to identify any cash receipts from Flounder Co
- if it is due to the good in transit, agree the differences to the pre-year end good despatch
notes

Menhaden Co:
- review the receivable ledger of Triggerfish Co to identify if there are possible mis-postings as
this could be the reason for the difference with Manhaden Co
- if it is due to the credit not, this should be agreed to the pre year-end credit note dispatched
around the year-end date
SD18
18. (a) - TR
Jasmine Co manufactures motor vehicle components and its year end was 30 June 20X8. You are an
audit supervisor of Peppermint & Co and the final audit is due to commence shortly. Total assets are
$43·2m and profit before tax is $7·2m. The following matters have been brought to your attention:

Trade receivables
Jasmine Co’s trade receivables ledger is comprised of a large number of customers. In previous
years, the audit team has undertaken a positive trade receivables circularisation to confirm year-end
balances. However, the customer response rate has historically been low and so alternative audit
procedures have been undertaken. A decision has been made that for the current year audit a
circularisation will not be performed. The year-end trade receivables balance is $3·9m (20X7: $2·8m)
and the allowance for trade receivables is $410,000 (20X7: $300,000).

- review the aged receivables report to identify any slow-moving receivables balance and if
any, discuss with the credit controller whether it will be pay or if allowance is required
- review the board minutes to identify any significant concerns in relation to the payments
from customers
- review correspondence with customer to identify any disputed balances or if there are any
balances that is unlikely to be settled then discuss with management
- review the post year-end cash receipts from the cash book to identify any payment made for
the slow-moving balances
- calculate the receivable days and compare to prior year and investigate any significant
differences

18. (b) - bank

Bank balances
The bank and cash figure included in Jasmine Co’s draft financial statements is comprised of a
number of bank account balances: an overdraft of $5·1m which is the company’s main current
account and $0·2m relating to several savings accounts. The finance director has informed the audit
manager that all accounts have been reconciled as at the year end.

The overdraft of $5·1m has increased significantly since the prior year (20X7: $1·2m). The directors
have informed you that the overdraft facility, which the company requires in order to operate on a
daily basis, is due for renewal in October 20X8 and that they are confident it will be renewed.

- obtain the bank reconciliation and cast the additions to ensure arithmetical accuracy
- obtain the bank confirmation letter for all accounts from the client’s bankers to confirm the
correct balance for each accounts
- trace all the unpresented cheque to the pre year-end cash book, and post year-end bank
statement. for any unusual amount or significant delay, obtain explanation from the
management of Jasmine Co
- trace all the outstanding lodgements to the pre year-end cash book, post year-end bank
statement and also to the paying-in book per year-end.
- review disclosure of bank in the draft financial statements to ensure it is in compliance with
the law and regulations the financial statements to ensure the disclosure of bank balances is
complete and accurate and classified approrpriately between CA and CL
SD17
18. (a) - TRCL
Dashing Co manufactures women’s clothing and its year end was 31 July 20X7. You are an audit
supervisor of Jaunty & Co and the year-end audit for Dashing Co is due to commence shortly.

The draft financial statements recognise profit before tax of $2·6m and total assets of $18m. You
have been given responsibility for auditing receivables, which is a material balance, and as part of
the audit approach, a positive receivables circularisation is to be undertaken.

- prepare the circularisation letter using the Dashing Co’s letterhead requesting the customers
to confirm the year-end receivables balance and to reply directly to the audit team using the
provided prepaid envelope
- the finance director of Dashing Co must be requested to sign all the circularisation letters
prior to be send by a member of the audit team
- for non-response, send a follow-up letter or give a phone call with Dashing Co permission
and where necessary alternative procedure should be performed
- when response is received, reconcile with the Dashing Co receivable records. Any
differences such as good in transit or cash in transit should be investigated further

18. (b) - TR

accuracy, valuation & allocation:

- review aged receivables report to identify any slow-moving receivables balance and if any,
discuss with the management of Dashing Co whether the customer will pay or an allowance
is required
- review customer correspondence to identify any disputed balance or any balance which is
unlikely to be settled

completeness:
- select a sample of GDN right before the year end, agree to the sales invoice and to inclusion
in the sales ledger and year-end receivables ledger
- agree the total of individual sales ledger accounts to the aged receivables report and trial
balance

rights & obligations:

- review the board minutes for evidence of the legal title to receivables has been sold to a
third party such as a factor
- for a sample of receivables, agree balance recorded in the sales ledger to the original name
of the customer on the sales order or a contract
MJ17
17. (c) - bank
Airsoft Co is a listed company which manufactures stationery products. The company’s profit before
tax for the year ended 31 December 20X6 is $16·3m and total assets as at that date are $66·8m. You
are an audit supervisor of Biathlon & Co and you are currently finalising the audit programmes for
the year-end audit of your existing client Airsoft Co. You attended a meeting with your audit
manager where the following matters were discussed:

Bank overdraft and savings accounts

Airsoft Co’s draft financial statements include a bank overdraft of $2·6m, which relates to the
company’s main current account. In addition Airsoft Co maintains a number of savings accounts. The
savings account balances are classified as cash and cash equivalents and are included in current
assets. All accounts have been reconciled at the year end.

- obtain the bank reconciliation and cast the additions to ensure arithmetic accuracy
- obtain the bank confirmation letter from the Airsoft Co bankers for all accounts
- trace all unpresented cheques to the pre year-end cashbook and post year-end bank
statement. any unusual amount or significant delay obtain explanation from the
management of Airsoft Co
- trace all outstanding lodgements to the pre year-end cashbook, post year-end bank
statement and paying-in book pre year-end.
- review the draft financial statements to ensure disclosure relating to bank balances are
completed and accurate
MJ16
2. - bank

1. Recalculation
obtain the bank reconciliation for all accounts and cast it to ensure arithmatical accuracy

2. Inspection
review the financial statements to ensure the disclosure for bank balances are complete and
accurate

3. External confirmation
obtain bank confirmation letter from the client’s bankers for all accounts
J15
6. (ii) - bank
Hawthorn Enterprises Co (Hawthorn) manufactures and distributes fashion clothing to retail stores.
Its year end was 31 March 2015. You are the audit manager and the year-end audit is due to
commence shortly. The following three matters have been brought to your attention.

Bank reconciliation
During last year’s audit of Hawthorn’s bank and cash, significant cut off errors were discovered with
a number of post year-end cheques being processed prior to the year end to reduce payables. The
finance director has assured the audit engagement partner that this error has not occurred again
this year and that the bank reconciliation has been carefully prepared. The audit engagement
partner has asked that the bank reconciliation is comprehensively audited. (4 marks)

6. (iii) - TR
Receivables
Hawthorn’s receivables ledger has increased considerably during the year, and the year-end balance
is $2·3 million compared to $1·4 million last year. The finance director of Hawthorn has requested
that a receivables circularisation is not carried out as a number of their customers complained last
year about the inconvenience involved in responding. The engagement partner has agreed to this
request, and tasked you with identifying alternative procedures to confirm the existence and
valuation of receivables. (5 marks)

bank:
- obtain the bank reconciliation for all accounts of Hawthorn and cast it to ensure arithmatical
accuracy
- obtain bank confirmation letter from the Hawthorn’s bankers for all accounts
- trace all the unpresented cheques to the pre year-end cashbook and post year-end bank
statement. any unusual amount and significant delay obtain explanation from the
management of Hawthorn
- trace all outstanding lodgements to the pre year-end cashbook, post year-end bank
statement and also paying-in-book pre year-end

receivables:
- review the aged receivables report to identify any slow-moving receivables balance and if
any, discuss with the management of Hawthorn whether the balances will be paid or if an
allowance is required
- review the board minutes to identify any significant concerns relating to payment from the
customers
- review the correspondence with customer to identify any disputed balance or if there are
any balance that is unlikely to be settled
- review the post year-end cash receipts in the cashbook to identify if there are any payments
made for the slow-moving receivables balance
- calculate the receivables days and compare with prior year, any significant differences
should be investigated further