Ewing his interim audit visit, Charles Ai determined that one of the subsidiary companies of Mega Big Limited had experienced some very serious problems with respect to the credit management and collection of trade accounts receivable. During the first six months of the year, the accounts receivable of this subsidiary had almost doubled, the number of days’ sales in accounts receivable had increased from 39 days to 64 days, and bad-debt expense had risen sharply.
REQUIRED
Prepare an outline of the steps that should be taken to investigate the nature and causes of the credit and collection problems. (Do not consider the possibility of fraud.)