Auditing and Assurance Services 9th Edition by Alvin Arens,Mark Beasley,Randy Elder

Exercise 4

Mincin, CPA, is the auditor of the Raleigh Corporation. Mincin is considering the audit work to be performed in the accounts payable area for the current year's engagement. The prior year's working papers show that confirmation requests were mailed to 100 of Raleigh's 1,000 suppliers. The selected suppliers were based on Mincin's sample, which was designed to select accounts with large-dollar balances. A substantial number of hours was spent by Raleigh and Mincin in resolving relatively minor differences between the confirmation replies and Raleigh's accounting records. Alternative audit procedures were used for suppliers who did not respond to the confirmation requests.
Required:
a. Discuss the accounts payable assertions that Mincin must consider in determining the audit procedures to be followed.
b. Discuss situations in which Mincin should use accounts payable confirmations, and discuss whether Mincin is required to use them.
c. Discuss why the use of large-dollar balances as the basis for selecting accounts payable for confirmation might not be the most efficient approach, and indicate what more efficient procedures could select accounts payable for confirmation.
(AICPA, adapted)