Final answer:
In reviewing the credit ratings of customers with delinquent accounts receivable, an auditor seeks evidence related to the assertions of accuracy, valuation, and allocation of these accounts in the financial statements.
Step-by-step explanation:
An auditor reviewing the credit ratings of customers with delinquent accounts receivable is likely aiming to gather evidence regarding management's assertions about accuracy, valuation, and allocation. These aspects relate to the financial statements' fidelity, ensuring that accounts receivable are recorded at the appropriate values and that the chances of eventual collection are reasonably estimated. This review helps in assessing whether the receivables' reported values are accurate and reflect an appropriate estimation of their collectability.
The credit rating from agencies like Standard and Poor's and Moody's provides a benchmark of a customer's financial reliability and ability to repay their loans. By investigating these credit ratings, the auditor can compare them with the company’s financial provision for doubtful debts, which is a necessary step in valuation and allocation of accounts receivable, according to Generally Accepted Accounting Principles (GAAP). This comparison helps determine if the receivables are properly valued on the balance sheet and if any necessary provisions for bad debts have been made accordingly.
Understanding the principles on which banks base their lending decisions, such as the depth of a borrower's previous borrowing history and reliability in repaying loans, are integral to an auditor's evaluation. This information complements the auditor's assessment, directly impacting the accuracy and reliability of the financial statements regarding possible credit losses associated with the accounts receivable.