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CS Professional · Internal and Forensic Audit · Internal Audit of Specific Functions

While reviewing the credit control function of Meera Electricals Ltd, the internal auditor notes that receivables ageing shows 35% of debtors outstanding beyond 180 days, with no provision policy. Which action is the most appropriate audit step?

The auditor should review recoverability of the long-outstanding debtors, assess whether provisioning is adequate and recommend a documented credit and collection policy. Ignoring recorded balances, writing off without approval or raising sales targets would not address the weak credit control.

  1. AReview recoverability of old balances, evaluate the adequacy of provisioning and recommend a documented credit and recovery policyCorrect
  2. BIgnore the balances as they are already recorded in the books
  3. CWrite off all balances over 180 days without approval
  4. DIncrease sales targets to improve the ratio

Explanation

A high share of long-overdue debtors signals weak credit control and possible overstated assets. The auditor should assess recoverability and provisioning and recommend a formal policy. Ignoring the balances or writing off without authority are control failures, and raising targets worsens the problem.

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