You are in the course of auditing a trading company for the year ended 31 March 2020. You are that the client appears to have accounts receivable collection problem. It is the client's policy to allow a 30-day credit to each of its customers and to provide a general provision for bad debt as 1 per cent of the year-end accounts receivable balance. However, you observe that most of the client's customers have been outstanding for more than 60 days at the year ended 31 March 2020. According to past experience with the client, you noted that the client had written off of bad debt amounted to $378,000 and 423,500 for the year ended 31 March 2019 and 31 March 2018, respectively. In those years, accounts receivable balances as at 31 March 2019 was $3,450,000 and as at 31 March 2018 was $5,650,000. It is industrial practice to provide 1 per cent of the year-end accounts receivable balance as provision for bad debts. a) Perform (i) an industry analysis and (ii) a trend analysis based on the information given. b) Comment on the conservatism of the client's bad debts provision policy based on the test results of part a) above. c) Based on past experiences with the client, propose additional substantive procedures that you will carry out at the 2020 audit so as to obtain sufficient audit evidence regarding the following assertions in relation to the accounts receivable balance: (i) valuation and allocation (ii) existence
You are in the course of auditing a trading company for the year ended 31 March 2020. You are that the client appears to have accounts receivable collection problem. It is the client's policy to allow a 30-day credit to each of its customers and to provide a general provision for bad debt as 1 per cent of the year-end accounts receivable balance. However, you observe that most of the client's customers have been outstanding for more than 60 days at the year ended 31 March 2020.
According to past experience with the client, you noted that the client had written off of bad debt amounted to $378,000 and 423,500 for the year ended 31 March 2019 and 31 March 2018, respectively. In those years, accounts receivable balances as at 31 March 2019 was $3,450,000 and as at 31 March 2018 was $5,650,000. It is industrial practice to provide 1 per cent of the year-end accounts receivable balance as provision for
a) Perform (i) an industry analysis and (ii) a trend analysis based on the information given.
b) Comment on the conservatism of the client's bad debts provision policy based on the test results of part a) above.
c) Based on past experiences with the client, propose additional substantive procedures that you will carry out at the 2020 audit so as to obtain sufficient audit evidence regarding the following assertions in relation to the accounts receivable balance:
(i) valuation and allocation
(ii) existence
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