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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Q38 Analytical Procedures
Hello Sir, from bpp practice kits
Q38
Which of the following audit response to the increase in the receivables collection period of Bridgford is the LEAST relevant?
Answer is Perform a trend analysis on current year and prior year monthly revenue,to identify whether revenue is overstated as a result of fraud or error.
Why it should be reduced in the receivable collection period that indicates overstated in revenue and vice versa, I don’t understand, hope that tutor can explain the logic to me.
Thank you.
Receivable days = Average collection period i.e. # of days (on average) = Trade receivables/sales per day e.g. 300/(4,000/365) = 27 days (approx).
If revenue is overstated (say by 10%), the average collection period will FALL (not increase): 300/(4,400/365) = 25 days