You are the auditor of Sweet Inc., a company that manufactures chocolate bars and assorted candies. The description of the sales and collection cycle for Sweet is as follows.

Clients and Credit Limits

Sweet has 50 clients, as it mostly sells to grocery stores' central purchasing departments or distributors. For each customer, Sweet performs a credit check prior to setting the credit limit for the client. The credit limit is reviewed each year. In the past year, the credit limits were increased by 10%. This is due to the growth in Sweet product lines and increased demand from customers. This also came at the same time the CEO of Sweet set the objective of growing the company's revenue by 25% over the next two years. Increasing the credit limit has helped Sweet move towards that objective.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is calculated by the controller by taking a percentage of the total sales for the month. The controller has been taking 3% of total sales. The estimate has not been revised in the current year, but it has always been sufficient to cover for any write-offs incurred.

Required:

For each of the two areas discussed above, identify and discuss the risk areas and the most likely misstatements for Sweet.

Answer rating: 100% (QA)

a Risk areas Incorrect credit limits being set for customers due to the strategy of incr... View the full answer