Question

1. Select 20 customer accounts from the accounts receivable master file and trace to the aged accounts receivable listing to verify name and amount.

2. Select 20 customer accounts from the aged accounts receivable listing and trace to the accounts receivable master file for name, amount, and aging categories.
3. Prepare a bar chart showing amounts and percentages of accounts receivable in each aging category for the current and prior year and evaluate trends.
4. Obtain a list of aged accounts receivable, foot and cross-foot the list using audit software, and trace the total to the general ledger.
5. Compute accounts receivable turnover for the current year and compare to the prior year and to the industry average.
6. Perform alternative procedures on accounts not responding to second requests by examining subsequent cash receipts documentation and shipping reports or sales invoices.
7. Request 50 positive confirmations of accounts receivable.
Required
a. Which notes receivable balance-related audit objective(s) might have a high risk of material misstatement?
b. What risks, if any, would you consider to be a significant risk related to notes receivable?
c. How might the number of days receivables outstanding in the current year compare to prior years'?
d. Do you plan to send notes receivable confirmations in the current year? Why or why not?
e. To what extent will confirmations of notes receivable help you assess collectibility of the accounts as of year end?

Answer 1

The money listed under assets on a bank balance sheet may not actually be in the bank due to various reasons, including withdrawals, loans, investments, or other acquisitions made by the bank.

Step-by-step explanation:

5. The money listed under assets on a bank balance sheet may not actually be in the bank due to several reasons:

• Depositors may have withdrawn some or all of their funds.
• The bank may have made loans or investments with the funds, reducing the actual cash on hand.
• The bank may have used the funds to purchase other assets, such as securities or property.

6. In the secondary market, the willingness to pay more or less for a given loan depends on various factors:

• If the borrower has been late on a number of loan payments, the loan may be considered riskier and the buyer may be willing to pay less.
• If interest rates in the economy have risen since the bank made the loan, the buyer may expect higher returns and be willing to pay more.
• If the borrower is a firm that has just declared a high level of profits, the buyer may perceive it as a lower risk and be willing to pay more.
• If interest rates in the economy have fallen since the bank made the loan, the buyer may expect lower returns and be willing to pay less.