Module C (Dec 14)_Answer.pdfVIP

Module C (December 2014 Session) 1 of 12 SECTION A – CASE QUESTIONS (Total: 50 marks) Answer 1(a) The balance of trade receivables as at 30 June 2014 significantly increased when compared to that of 31 December 2013, which did not match with the half-year performance of the entity. The debtors’ turnover period for the interim period increased significantly to 88 days when compared to 68 days for the year ended 31 December 2013. The debtors’ turnover period for the interim period was much longer than the normal credit term granted to its customers. The risk of material misstatement relating to the existence and valuation assertions of trade receivables is high. The risk of material misstatements may be caused by: ? Amounts posted to trade receivables were not related to valid sales. ? Cut-off error ? receipt from debtors before report date but not recorded; or ? recorded sales but actual delivery was made after the reporting date. ? The reconciliation between the trade receivables sub-ledger and the general ledger may contain un-reconciling items which could result in a misstatement of trade receivables. ? The trade receivables were not recoverable. ? Trade receivables were misstated due to the use of an incorrect exchange rate for the foreign currency sales. ? Inputting error. Answer 1(b) Cherry Group’s external auditors can perform the following: ? circularise year end trade receivable balances to targeted debtors which were identified as having large outstanding balances; ? follow up the replied confirmations with disagreements and the non-replied confirmations; ? review post reporting date cash receipts by inspecting bank statements and cash receipts documentation; ? for balances not yet settled after the reporting date, examine their respective invoices, sales order from customers or despatch documentation, etc; Module C (December 2014 Session) 2 of 12