Accounts Payable Confirmations. Partners Clark and Kent, both CPAs, are preparing their audit plan for the audit of accounts payable on Marlboro Corporation’s annual audit. Saturday afternoon they reviewed the thick file of last year’s documentation, and they both remembered too well the six days they spent last year on accounts payable.Last year, Clark had suggested that they mail confirmations to 100 of Marlboro’s suppliers. The company regularly purchases from about 1,000 suppliers, and these account payable balances fluctuate widely, depending on the volume of purchase and the terms Marlboro’s purchasing agent is able to negotiate. Clark’s sample of 100 was designed to include accountswith large balances. In fact, the 100 accounts confirmed last year covered 80 percent of the total dollars in accounts payable. Both Clark and Kent had spent many hours tracking down minor differences reported in confirmation responses. Nonresponding accounts were investigated by comparing Marlboro’s balance with monthly statements received from suppliers. Required:a. Identify the accounts payable audit objectives that auditors must consider in determining the audit procedures to be performed.b. Identify situations when auditors should use accounts payable confirmations, and discuss whether they are required to use them.c. Discuss why the use of large dollar balances as the basis for selecting accounts payable for confirmation is not the most effective approach, and indicate a more effective sample selection procedure that could be followed when choosing accounts payable for confirmation.
Accounts Payable Confirmations. Partners Clark and Kent, both CPAs, are preparing their audit plan for the audit of accounts payable on Marlboro Corporation’s annual audit. Saturday afternoon they reviewed the thick file of last year’s documentation, and they both remembered too well the six days they spent last year on accounts payable.
Last year, Clark had suggested that they mail confirmations to 100 of Marlboro’s suppliers. The company regularly purchases from about 1,000 suppliers, and these account payable balances fluctuate widely, depending on the volume of purchase and the terms Marlboro’s purchasing agent is able to negotiate. Clark’s sample of 100 was designed to include accounts
with large balances. In fact, the 100 accounts confirmed last year covered 80 percent of the total dollars in accounts payable. Both Clark and Kent had spent many hours tracking down minor differences reported in confirmation responses. Nonresponding accounts were investigated by comparing Marlboro’s balance with monthly statements received from suppliers.
Required:
a. Identify the accounts payable audit objectives that auditors must consider in determining the
b. Identify situations when auditors should use accounts payable confirmations, and discuss whether they are required to use them.
c. Discuss why the use of large dollar balances as the basis for selecting accounts payable for confirmation is not the most effective approach, and indicate a more effective sample selection procedure that could be followed when choosing accounts payable for confirmation.
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