Question

Customers having substantial year-end past due balances fail to reply after second request confirmation forms have been mailed directly to them. Which of the following is the most appropriate audit procedure?

1) Examine shipping documents.
2) Review collections during the year being examined.
3) Intensify the study of the entity's system of internal control with respect to receivables.
4) Increase the balance in the allowance for uncollectible accounts.

Answer 1

The most appropriate audit procedure is to intensify the study of the entity's system of internal control with respect to receivables.

Step-by-step explanation:

The most appropriate audit procedure in this scenario is to intensify the study of the entity's system of internal control with respect to receivables. This involves reviewing the company's internal control measures and processes for managing outstanding receivables. By doing so, the auditor can gain insights into the company's collection practices and identify any weaknesses or potential risks.

Examining shipping documents would not directly address the issue of customers with past due balances, so option 1 can be ruled out. Option 2, reviewing collections during the year being examined, may provide some information, but it does not specifically address the issue of customers with year-end past due balances. Increasing the balance in the allowance for uncollectible accounts (option 4) would not be the most appropriate audit procedure. While it may be a valid corrective action, it does not directly address the issue of customers failing to reply after second request confirmation forms have been mailed to them.