ACCA Audit and Assurance (F8) Practice Exam

What is an important step in the procedures for irrecoverable debts?

1. Review estimated future cash flows

2. Analyze historical sales data

3. Review cash received after the date

4. Adjust the customer’s line of credit

The correct answer is: Review cash received after the date

In the context of evaluating irrecoverable debts, reviewing cash received after the date of the financial statements is essential for determining the ultimate recoverability of outstanding receivables. This procedure allows the auditor to assess whether any cash has been collected from customers post-year-end, which can provide critical evidence regarding the status of those debts. If significant collections are made after the reporting period, it may indicate that the debts were not truly irrecoverable and could affect the financial assessment of the company's debts. Monitoring cash inflows can also highlight situations where management might need to adjust their estimates of irrecoverable debts based on improved customer payments or changes in the economic environment that could influence customer behavior. Therefore, tracking cash received post-reporting date is a key step in evaluating the accuracy and necessity of provisions for irrecoverable debts, ensuring that the financial statements reflect a true and fair view of the company’s financial position.