Adapted AICPA Task-Based Simulation Youu are involved with the audit of Jelco Co

Question

Adapted AICPA Task-Based Simulation

Youu are involved with the audit of Jelco Company for year 1 and have been asked to consider the confirmation reply results indicated below. For each confirmation reply as to the proper action to be taken from the following possible action:
(1) Exception: propose an adjustment.
(2) Send a second confirmation request to the customer.
(3) Examine shipping documents and/or subsequent cash receipts.

(4) Verify whether the additional invoices noted on the confirmation reply pertain to the year under audit or the subsequent year.

(5) Not an exception, no further audit work is necessary.

Customer Reply (and any audit action already taken)                Proper Action a. •we mailed the check for this on December 31." b.   we returned those goods on December 2.• You have been able to determine that the goods were received by the client on December 29, but not recorded until January 2. c. "We also owe for two more invoices for purchases we made around year-end; I'n not sure of the exact date" d. we are very satisfied with Jelco and plan to purchase from them in the future" e. "While that's what we owe, we didn't owe it on December 31 since we didn't receive the goods until January 2 of year 2.• f. You received noreply to a negative confirmation request to Adams Co. g.You received no reply to a positive confirmation request to Blake Co. Subsequently you recalled that Blake Co.has a policy of not responding to confirmations- in writing or orally.

Explanation / Answer

Customer Reply (and any audit action already taken)                Proper Action a. •we mailed the check for this on December 31." Examine subsequent cash receipts b.   we returned those goods on December 2.• You have been able to determine that the goods were received by the client on December 29, but not recorded until January 2. Exception, Propose an adjustment c. "We also owe for two more invoices for purchases we made around year-end; I'n not sure of the exact date" Verify whether the additional invoices noted on the confirmation reply pertain to the year under audit or the subsequent year. d. we are very satisfied with Jelco and plan to purchase from them in the future" Send a second confirmation request to the customer e. "While that's what we owe, we didn't owe it on December 31 since we didn't receive the goods until January 2 of year 2.• Examine shipping documents f. You received no reply to a negative confirmation request to Adams Co. Not an exception, no further audit work is necessary. g.You received no reply to a positive confirmation request to Blake Co. Subsequently you recalled that Blake Co.has a policy of not responding to confirmations- in writing or orally. Not an exception, no further audit work is necessary.

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