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In the question the receivable days for residential customers has increase and for business customers it decreased , but comparing this result with notes to FS the trade receivables for residential customers has increased which is seems logical as the collection days increase but the receivables for business customers have been also increased ( this seems un logical to me as the collection days have been reduced ! )
I am not sure of the possible misstatement here ! And how to relate it to credit allowance loss
So it is because it appears illogical that there is a risk of material misstatement – as you say – you might expect both to follow the same pattern but, then again, average collection period should really stay quite stable according to the credit terms, regardless of increase in sales/receivables.
You don’t have to “solve” the mystery – “Comment on the matters to be considered, and explain the audit evidence you should expect to find” …
So, for example, perhaps the anomaly in business customers arises because some major customers were chased to pay more promptly (evidence – pattern of cash receipts before the year end).You might expect credit allowance to increase because, overall, receivables balances have increased – but the increase in allowance is proportionately more – why? Perhaps the increase in days for residential customer reflects a significant bad debt. What evidence would support this?
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