In-Line Company Records Accounts Receivable from Customers Arising from Both

question 56

Essay

In-Line Company records accounts receivable from customers arising from both the sale of in-line skates and the provision of repair service. The CPA firm of King & King is auditing the financial statements of In-Line Company. Lyon, the audit manager, is aware that the confirmation of customer accounts receivable is a substantive procedure normally used in the audit of accounts receivable. Selected balances from In-Line's financial statements are as follows: accounts receivable, $7,000; current assets, $322,000; total assets, $630,000; shareholders' equity, $570,000; net income, $190,000.
Required:
A) How can Lyon justify deciding not to confirm In-Line's accounts receivable?
B) Briefly describe two types of positive confirmation Lyon could send to In-Line's customers.
C) What alternative procedures can Lyon perform if In-Line's customers fail to respond to the confirmation requests?

• A) How can Lyon justify deciding not to confirm In-Line's accounts receivable?
• B) Briefly describe two types of positive confirmation Lyon could send to In-Line's customers.
• C) What alternative procedures can Lyon perform if In-Line's customers fail to respond to the confirmation requests?

---

Definitions:

Formal Feedback

Structured and officially provided responses or evaluations, often related to job performance or project outcomes.

Continuous Improvement

A management philosophy focusing on the incremental improvement of products, services, and processes over time.

Lean Business Model

An approach to business aimed at creating value for customers with minimal waste and resources.

Planning (P)

The process of setting objectives, developing strategies, and outlining tasks and schedules to achieve the goals.