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For an identified risk
Some of Donald’s customers (the travel agents) are struggling to pay the amounts they owe to the company. This could result in irrecoverable debts not being written off and doubtful debts not being provided for. As a result the receivables balance and profit in the financial statements may be overstated.
Is the response corrct
Review the aged recvbls analysis and discuss with managemnt about their method of establishing the provision and evaluate as to whether the estimated provision is reasonable or appropriate
That is certainly OK but more is needed. For example:
1 Are the amounts material. If not no response is necessary?
2 Have any amounts been received after year end?
3 Can we find out any information about the state of the customers (eg have they already gone into liquidation).
4 Letter of representation should state that the directors believe the amounts are recoverable.
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