ACCA Audit and Assurance (F8) Practice Exam

When ensuring "Valuation and Allocation" of receivables, what is a procedure auditors typically perform?

1. Examine goods dispatched around year-end

2. Review allowance for uncollectable accounts

3. Perform receivable confirmation

4. Compare aged analysis of receivables

The correct answer is: Compare aged analysis of receivables

Valuation and allocation of receivables is a critical aspect of audit procedures, as it helps to ensure that the reported amounts truly reflect what is expected to be collected. When auditors compare aged analysis of receivables, they are essentially evaluating the aging schedule to identify past due accounts and assess the likelihood that these amounts will be collected. This analysis provides insights into the collectability of receivables and helps auditors determine if an appropriate allowance for doubtful accounts has been established. The aged analysis reveals patterns in collections, such as overdue amounts that may require specific provisions, which directly ties into the valuation of receivables. By looking at how long specific accounts have been outstanding, auditors can better assess whether the recorded values are realistic and adequately reflect potential losses from uncollectible accounts. Other procedures, while valuable, do not directly address the valuation and allocation aspect in the same way. For example, examining goods dispatched around year-end pertains more to inventory and cut-off issues. Reviewing allowances assesses management's judgment but does not provide the same comprehensive insight into the collectability of receivables as the aged analysis does. Performing receivable confirmation can validate the amounts stated by confirming balances with customers, but it does not in itself assess how collectible those amounts actually are