Question

When using audit data analytics (ADA) in the investigation of the collectability of accounts receivable, the auditors identified several groups of customers. The client's normal credit terms are n/60. Which group most likely represents the greatest collection concern?

1) Customers that regularly pay in 30-60 days
2) Customers that regularly pay in 120 days
3) Customers that regularly pay in 60-90 days
4) Customers that were making payments within 30-60 days and are now making payments within 90-120 days

Answer 1

The group that represents the greatest collection concern for accounts receivable is the group of customers that were previously making payments within 30-60 days but are now paying within 90-120 days. This change in payment behavior suggests a heightened collectability risk.

Step-by-step explanation:

When examining the collectability of accounts receivable using audit data analytics (ADA), auditors need to assess the risk associated with different groups of customers based on their payment patterns. The customer's normal credit terms are net 60 days (n/60), indicating that the payment is due in full within 60 days. Among the presented options, the group that most likely represents the greatest collection concern is:

• Customers that regularly pay in 30-60 days
• Customers that regularly pay in 120 days
• Customers that regularly pay in 60-90 days
• Customers that were making payments within 30-60 days and are now making payments within 90-120 days

The fourth group indicates a change in payment behavior, with payments now being made significantly later than the agreed terms. This shift suggests potential financial difficulties or changes in the priority which the customer places on paying our client, thus signaling a heightened risk in terms of collectability.