It is common practice for companies to make two allowances for doubtful accounts: 1. The specific allowance
Question:
It is common practice for companies to make two allowances for doubtful accounts:
1. The specific allowance is based on accounts the company has reason to suspect may not be paid.
2. The general allowance relates to accounts as yet unknown but that experience suggests may not be paid. The likelihood of a receivable account being unpaid is usually assumed to increase the longer it remains unpaid, and many companies determine a general allowance as a percentage of overdue receivables, with an increasing percentage being applied against the longest overdue accounts.
You are aware that CAS 540 Auditing Accounting Estimates and Related Disclosures is likely to be relevant to the audit of the allowance for doubtful accounts.
Required Describe the procedures you would adopt in verifying:
a. a general allowance for doubtful accounts
b. a specific allowance for doubtful accounts
Step by Step Answer:
Auditing A Practical Approach
ISBN: 9781119709497
4th Canadian Edition
Authors: Robyn Moroney, Fiona Campbell, Jane Hamilton, Valerie Warren