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“Obtain a breakdown of the allowance for trade receivables, recalculate and compare to any potentially irrecoverable balances to assess if the allowance is adequate.”
maam why does it say compare to any “potentially” irrecoverable balances…
i mean we should compare loss allowance(or provision for doubtful debts per my prior understanding) to PRIOR YEAR irrecoverable balances(or bad debts per my prior understanding) to assess if allowance is adequate!
When you have a list of balances – hopefully with an aged analysis – so you can see who are the slow-payers/where invoices might be disputed, etc.
You are comparing the client’s breakdown/calculation of allowance with what looks potentially “a bad debt”. It’s only potential until the client’s gives up on recovering it or the customer goes into liquidation/bankruptcy (when it will be actual and should be written out of the books).
We don’t/shouldn’t call allowances (for slow-moving inventory, trade receivables, depreciation) “provisions” – because they are NOT liabilities.
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