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Q38 Analytical Procedures

This topic has 1 reply, 2 voices, and was last updated 5 years ago by Kim Smith.

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May 29, 2019 at 12:15 pm #517786
toushiga
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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.
May 29, 2019 at 12:35 pm #517789
Kim Smith
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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
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