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sir
in the paragraph of receivables circularisation, one line it says
….. they don’t want to arouse suspicious and quite separate valuation exercise has to be done later.what does this line means?
Say you were a company owing a supplier $500,000 which you will have trouble paying.
You get a letter from your supplier’s auditor asking you to confirm that you owe the amount. If you didn’t reply, the auditors and supplier would get worried. So, you reply promptly to give the impression that all is well and that you acknowledge your indeptedness. However, your reply says nothing about whther you will be able to pay that amount. Really, the reply is just playing for time.
Therefore to see whether a debt is likely to be received (ie its valuation) additional evidence is needed eg age of debt, slow-down of payments, runmours about the debtor being in trouble. Of course, if some weeks after year end the amount is received there are no worries about its valuation. If a few weeks after year end the debtor goes into liquidation the debt would probably have to be valued at zero (an example of an adjusting event after the period end).
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