Final answer:
An auditor reviews customer credit ratings to assess 1. valuation and allocation of accounts receivable, establishing creditworthiness based on historical borrowing behavior, which impacts the receivables' valuation on the balance sheet.
Step-by-step explanation:
When an auditor reviews credit ratings of customers with delinquent accounts receivable, their most likely purpose is to obtain evidence concerning management's assertions about valuation and allocation. The credit ratings provide an insight into the likelihood of collection of these debts, which directly impacts the valuation of accounts receivable on the balance sheet. A customer's credit rating is a measure of their creditworthiness, which is determined by their borrowing and repayment history. If customers have low credit ratings, this might indicate that they are less likely to repay their debts, which may lead the auditor to suggest that the accounts receivable should be valued lower, or a provision for bad debts should be increased in financial statements.
The rationale behind this lies in the principles of financial accounting, particularly the relevance of historical borrowing behavior as it correlates with future repayment probabilities. For example, a borrower with a history of late loan repayments is generally seen as a higher risk, and thus their associated debts would be less valuable. Therefore, auditors utilize customer credit ratings in their assessment to ensure that the financial statements accurately represent the realizable value of receivables.