Lawrence Company maintains its accounts on the basis of a fiscal year ending Oct
ID: 2592434 • Letter: L
Question
Lawrence Company maintains its accounts on the basis of a fiscal year ending October 31, Assume that you were retained by the company in August to perform an audit for the fiscal year ending October 31, 199X. You decide to perform certain auditing procedures in advance of the balance sheet date. Among these interim procedures is the confirmation of accounts receivable, which you perform at September 30. The accounts receivable at September 30 consisted of approximately 200 accounts with balance totaling $650,725 were selected for confirmation. All but 20 of the confirmation requests have been returned; 30 were signed without comments, 14 had minor differences that have been cleared satisfactorily, and 11 confirmations had the following comments: 1. We are sorry, but we cannot answer your request for confirmation of our account because Moss Company uses a computerized accounts payable voucher system. 2. The balance of $1,050was paid on September 23, 199X. 3. The above balance of $7,750 was paid on October 5, 199X. 4. The above balance has been paid. 5. We do not owe you anything at September 30, 199X, since the goods represented by your invoice dated September 30, 199X, number 25,050 in the amount of $11,550, were received on October 5, 199X, on FOB destination terms. 6. An advance payment of $2,500 made by us in August 199X should cover that two invoices totaling $1,350 shown on the statement attached. 7. We never received these goods. 8. We are contesting the propriety of the $12,525 charge. We think the charge is excessive. 9. Amount okay. As the goods have been shipped to us on consignment, we will remit payment upon selling the goods. 10. The $10,000, representing a deposit under a lease, will be applied against the rent due to us during 199X, the last year of the lease. 11. Your credit in the amount of $440, dated September 5, 199X, cancels the above balance. Required: What steps would you take to clear satisfactorily each of the above 11 comments?
Explanation / Answer
Following are the steps i as an auiditor would take for the 11 comments(Answer mentioned comment vise):
1. We are sorry, but we cannot answer your request for confirmation of our account because Moss Company uses a computerized accounts payable voucher system.- For this comment as an auditor i would ask them for the screenshots of the computerized accounts payable voucher or SAP screenshots as SAP is used for the same with proper date and amounts mentioned.
2. The balance of $1,050was paid on September 23, 199X.- For this comment as an auditor i would ask for the payment proofs with proper date and signatures of the authorized person and the reason for delay in payments if amount is effecting the account.
3. The above balance of $7,750 was paid on October 5, 199X.- For this comment as an auditor i would ask for the payment proofs.
4. The above balance has been paid- For this comment again the payment proofs required.
5. We do not owe you anything at September 30, 199X, since the goods represented by your invoice dated September 30, 199X, number 25,050 in the amount of $11,550, were received on October 5, 199X, on FOB destination terms.- The comment is relavent as per the suitation given. As per the FOB detination terms the revenue is realized when goods reach the destination specified. Therefore the payment should be of october 5 and proper date and signatures of the authorized person should be there in the bill of lading.
6. An advance payment of $2,500 made by us in August 199X should cover that two invoices totaling $1,350 shown on the statement attached.- For this comments the advance payment record should be checked as per august 199X and the total amount should match to satidfy that advance payment was made. If there is any mistake in the supports than new confirmations should be requested.
7. We never received these goods.- This is a rare case which can occure as goods are traced by tracking numbers or GPN devices. Proper investing should be done for this case and all the autorized people should be questioned as this is a case of breech.
8. We are contesting the propriety of the $12,525 charge.- The statement does not clerify anythig to me as an auditor. So i would comment back on this satement and ask for the clerity of the comment.
9. Amount okay. As the goods have been shipped to us on consignment, we will remit payment upon selling the goods-
10. The $10,000, representing a deposit under a lease, will be applied against the rent due to us during 199X, the last year of the lease.- Supports for the lease deposit should be asked for by the company and after that further procedure can be set.
11. Your credit in the amount of $440, dated September 5, 199X, cancels the above balance.- The supports for the credit balance hould be asked before accepting the cancelation of the amount.
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