You are a manager in the audit department of Pigeon & Co, a firm of Chartered Certified Accountants. You are responsible for the audit of Goldfinch Gas Co, a company which is the main supplier of gas to business and residential customers across the country.

The audit fieldwork for the year ended 30 June 2017 is nearing completion. The draft financial statements recognise profit before tax of $130 million (2016 – $110 million), and total assets of $1,900 million (2016 – $1,878 million).

You are reviewing the audit files and the following matters have been noted for your attention by the audit senior:

(c) Trade receivables
The draft statement of financial position recognises total trade receivables of $450 million (2016 – $390 million).
The audit team has performed substantive analytical procedures on trade receivables with the following results:

Receivables from business customers are generally reviewed for impairment on an individual basis when a customer changes their gas supplier, discontinuing their relationship with the Group. Receivables from residential customers are reviewed for impairment where they are more than 90 days late in paying their bill, or where customers have a history of late payment. Since a new customer billing system was introduced in September 2016, management has exercised additional judgement regarding the appropriate level of allowance for these trade receivables. (7 marks)

Required:
Comment on the matters to be considered, and explain the audit evidence you should expect to find during your file review in respect of each of the issues described above.

You are NOT required to explain the potential impact of the matters on the auditor’s opinion or report.

Note: The split of the mark allocation is shown against each of the issues above.