Final answer:
The question pertains to analyzing accounts receivable against credit limits using IDEA software to identify any exceptions where customers exceed their limits as of 12/31/17, potentially indicating credit risk. Further testing would include examining payment histories, approval processes, and justifications for the exceptions. Detecting patterns may reveal larger issues in credit control management.
Step-by-step explanation:
Analyzing accounts receivable and related credit authorization limits is a crucial function within the field of accounting and finance to ensure that the credit risk is effectively managed. IDEA, or Interactive Data Extraction and Analysis, is a software tool that can be utilized for such analysis. With this tool, a financial analyst can sort through large datasets to flag accounts where customers have balances exceeding their credit limits as of a specific date, in this case, 12/31/17.
To conduct this analysis, the analyst would compare the account balances against the established credit limits for each customer. Instances where the account balance exceeds the credit limit would be considered exceptions. Identifying exceptions is essential as they may indicate potential credit risk or internal control issues that could lead to financial loss. Patterns in the exceptions could suggest systematic issues such as a failure in the credit authorization process or deliberate attempts to override internal controls.
Upon identifying exceptions, further testing could involve reviewing customer payment histories, investigating the approval process of credit limits, and examining communications between the credit management team and customers. It is also prudent to look into whether there are any mitigating circumstances, like approved temporary credit limit increases, that would justify the exceptions. This detailed investigation helps ensure that due diligence is performed and credit risks are being actively managed.