Balotelli Beach Hotel Co (Balotelli) operates a number of hotels providing accommodation, leisure facilities and restaurants.

You are an audit senior of Mario & Co and are currently conducting the audit of Balotelli for the year ended 31 December 20X4. During the course of the audit a number of events and issues have been brought to your attention:

Non-current assets and depreciation
Balotelli incurred significant capital expenditure during the year updating the leisure facilities at several of the company’s hotels. Depreciation is charged monthly on all assets on a straight line basis (SL) and it is company policy to charge a full month’s depreciation in the month of acquisition and none in the month of disposal.

Trade receivables
Balotelli’s trade receivables have historically been low as most customers are required to pay in advance or at the time of visiting the hotel. However, during the year a number of companies opened corporate accounts which are payable monthly in arrears. As such, the trade receivables balance has risen significantly and is now a material balance.

As trade receivables is a material balance, the audit partner has asked that the audit team carry out a trade receivables circularisation.

Which of the following are benefits of carrying out a trade receivables circularisation?

(1) It provides evidence from an independent external source
(2) It provides sufficient appropriate audit evidence over all relevant balance assertions
(3) It improves audit efficiency as all customers are required to respond
(4) It improves the reliability of audit evidence as the process is under the control of the auditor

A. 1 and 2
B. 1, 2 and 4
C. 2 and 3
D. 1 and 4 only