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1.

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.

2. You receive a confirmation reply from P showing a difference of $150,000. The


customer has indicated that the difference represents one large invoice, which
was in dispute. The client confirms that a credit note was subsequently issued
for this amount and the goods were then reinvoiced for the same amount.
Items in dispute
A credit note can be issued to correct a mistake if the invoice has been
overstated or to reimburse the buyer completely (as a reduction in the
receivable) if the goods have been returned. A copy is sent to the customer while
another one is retained as a record and is used as a basis in adjusting receivable
accounts. Therefore, the auditor shall examine the records to ascertain whether
the credit note for the $150,000 difference actually exists. If this relates to goods
returned, reports in the receiving department may also be considered. The
auditor shall also verify if the corresponding entry was properly entered into the
books. If these examinations prove that an error was committed as to the
reinvoicing of the amount, this shall be aggregated with other exceptions to
determine if it is material and subject to adjustment.

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.

The collection could be later on reconciled against unpaid balances on customer


accounts. As for Customer J, collections before confirmation date but after balance
sheet date shall be examined. Invoices and shipping documents shall be matched
with checks received from the customer and receipts issued to verify the existence
of the unpaid balance on customer accounts.

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