Cash & Receivables Theory: The PCAOB’s Auditing Standard No. 2 requires that the auditor form an opinion on the effectiveness of controls. If any deficiencies exist, they should be reported in writing to management and the audit committee. The existence of a material weakness requires the issuance of an adverse opinion.
There are three types of possible deficiencies. Discuss: Research Auditing Standard No. 2 (www.pcaobus.org) and list and describe the three types of deficiencies. Next offer at least one example of one of the deficiency types. Comprehension: Choose a company in the same industry as your 10-k company.
Obtain the 10-k for the second company. Compute the current year’s average collection period for both companies. Explain the difference between the two companies. What does the average collection period tell you about the company? Compare the relationship between gross receivables, the allowance for uncollectible, the receivables turnover ratio, and the average collection period for both companies. (Please provide these in chart form) Company 1 Company 2 Gross Receivables Receivable Turnover Ratio Average Collection Period Discuss the differences and your opinion on these differences?
How does this information help a decision-maker?
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