Valuation of Debtors

Debtors are valued simple like other assets at the lower of cost and total realisable value. Valuation of debtors is actually a consideration of where the provision for doubtful and bad debts is adequate or not.  Therefore the auditor must consider the following matters:

i. How adequate is the system of internal control as far as suitable of credit and follow up of poor payers is related;

ii. The duration of credit allowed and taken;

iii. The balances have subsequently been settled through whether the date of the audit

iv. Whether an account is made up of particular items or not;

v. Whether an account is under the maximum credit allowed;

vi. The market values of any securities where any that have been lodged like collateral;

vii. Common information for debtors from collectors, trade relatives or other publications;

viii. The matters of set off;

ix. Where there are any legal proceedings, such the state of those proceedings and the legal status of any debtor;

x. The effects of the statute of limits;

xi. Comparing of debtors to sales this year along with previous duration, budgets and other companies;

xii. Evidence such any debt is in dispute for non delivery, poor quality or breakages.

It should be noted such that any debts that are considered bad should be written off to the loss and profit account. Provisions for doubtful debts should be set up against debts that are considered doubtful. Some companies have the habit of creation round sums or percentage provisions for doubtful debts. This practice is usually unacceptable to an auditor unless it is based on good statistical evidence that may come from past experience or such may come from data about another similar undertaking that is obtainable from trade associations or which is publicly available.