Question 1: You are a public accountant with the accounting firm of McPeak, Batchelor, and Leung. Your firm has been engaged to do the audit for ABC Manufacturing Company for several years. You are...

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Question 1: You are a public accountant with the accounting firm of McPeak, Batchelor, and Leung. Your firm has been engaged to do the audit for ABC Manufacturing Company for several years. You are assigned to the audit team to work on ABC’s audit for the year ended December 31, 20X7. The unaudited financial statements for ABC show accounts receivable at €427,325, net of the allowance for doubtful accounts. Approximately 25% of this amount is made up of large regular customers with receivable balances of €10,000 or more. The remainder of receivables consists of many customers with balances ranging from about €100 to €6,000 Last year’s accounts receivable, net of the allowance for doubtful accounts, was €385,648. The increase in accounts receivable from last year is consistent with an increase in sales revenue, although the percentage increase in sales is slightly less than the percentage increase in receivables. The method for calculating the allowance for doubtful accounts is consistent with the method that was used in prior years. What are the specific audit objectives for the audit of accounts receivable at December 31, 20X6? Question 2: Rivera, Escobar and Co., public accountants, audited the Kisangani Trust Company. Juanita Castillo had the responsibility for evaluating the collectability of loans secured by real property. She was working on two specific loans: 1) a €4 million loan secured by the Independence Street Apartments; and 2) a €5.5 million construction loan on the State Street office building now being built. The appraisals performed by the Kisangani Appraisal Partners, Inc., showed values in excess of the loan amounts. Upon enquiry, Sr Cortes, the trust company vice president for loan acquisition, stated: “I know the Independence Street loan is good because I myself own 40% of the partnership that owns the property and is obligated on the loan.” In her working papers, Sar Castillo wrote: 1) The Independence Street loan appears collectible; Sr Cortes personally attested to its collectability as a major owner in the partnership obligated on the loan. 2) The State Street loan is assumed to be collectible because it is new and construction is still in progress. 3) The appraised values of the properties exceed the loan amounts a. Do you perceive any problems with related-party involvement in the evidence used by Sar Castillo? Explain. b. Do you perceive any problems with Sar Castillo’s reasoning or the appropriateness of the evidence upon which she based her conclusions? Explain