ACCA Audit and Assurance (F8) Practice Exam

Which of the following receivable balances should receive particular attention during an audit?

1. Recently settled accounts

2. Accounts settled by round sum payments

3. Old unpaid accounts

4. Accounts with no customer credit

The correct answer is: Old unpaid accounts

The focus on old unpaid accounts during an audit is critical for several reasons. Firstly, these balances may indicate potential issues with collectability, which could affect the financial statements. If an account has been outstanding for an extended period, it raises concerns about whether the corresponding receivable is realizable. Auditors need to evaluate the adequacy of the allowance for doubtful accounts related to these older receivables. Secondly, older unpaid accounts might signal problems with the company’s credit policies or the creditworthiness of specific customers, thereby affecting cash flow forecasts and overall financial health. An audit requires assessing the reasonableness of management’s estimates concerning bad debts, and this is particularly relevant for aging accounts. Additionally, older accounts may necessitate a detailed examination of collection efforts and potential changes in the financial conditions of the customers involved. An auditor would also consider any legal implications, such as whether these debts need to be written off or if they may still be collectible through other means. While recently settled accounts, accounts settled by round sum payments, and accounts with no customer credit may raise concerns or warrant further analysis, they do not pose the same level of risk or need for scrutiny as old unpaid accounts. The emphasis on these older balances reflects a prudent approach to ensure accurate