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You receive a reply from Customer K indicating that they are unable to confirm
the entire account balance as their creditor records are maintained separately
for each division in an open item basis.
Whenever possible, the auditor may seek the confirmation of each division which
shall be totalled and compared to their outstanding account balance in the
clients books. It would be easier for these divisions to identify their balance
because the open item basis allows them to check whether an offsetting position
will clear the account. Thus, once cleared, the unpaid balances are immediately
obtained.
Failure of these divisions to reply would constitute a need for alternative
procedures such as analysis of subsequent collections. Checks received from
Customer K are compared to the invoices to identify the existence of related
receivable as of yearend.
8. You have performed alternate procedures on 5 accounts where you did not
receive a reply by examining subsequent collections. Customers B and C have both
made large round sum payments on account, which have been coded by the client
as unallocated payments. Customer J has not made any payments since the
confirmation date.
Unallocated payments by customers represent collections of customer accounts not
specifically matched to its corresponding invoice. The auditor should review
documents related to the collection such as receipts to ensure that they relate to
merchandise sold and the corresponding receivable is outstanding as of balance
sheet date. Inquiry with the cashier could also explain the reason for unallocation.