Part 2: HOW TO AUDIT EXPECTED CREDIT LOSSES (ECL): Accounts receivable audit procedures
Updated: February 24, 2025
Summary
The video delves into the critical role of forward-looking macroeconomic factors in the audit process, particularly in evaluating expected credit losses. It emphasizes the need for professional judgment in adjusting rates calculated based on economic factors, to accurately determine credit losses. The importance of materiality assessment and client estimates in this process is highlighted, along with the significance of analyzing account receivable aging through the look-back procedure. Overall, the video provides valuable insights into applying judgment and economic factors in assessing credit losses during audits.
Step 4: Forward-Looking Macroeconomic Factors
In this section, the speaker discusses the importance of considering forward-looking macroeconomic factors in the audit process. The focus is on how to apply judgment in evaluating economic factors that may impact expected credit losses.
Determining New Rates Based on Economic Factors
The speaker explains the process of determining new rates based on economic factors and how professional judgment plays a crucial role in adjusting rates calculated in earlier steps. The impact of economic factors on credit losses is explored.
Calculating Expected Credit Loss
This section delves into the calculation of expected credit loss by applying the determined rates to the current year's receivables. The speaker emphasizes the importance of assessing the materiality of credit losses and the significance of client estimates in the process.
Look-Back Procedure and Assessment
The speaker discusses the look-back procedure, where the accounts receivable aging is analyzed to determine the collection status of receivables. The assessment of materiality and the threshold for investigation are highlighted in this section.
FAQ
Q: What is the importance of considering forward-looking macroeconomic factors in the audit process?
A: Forward-looking macroeconomic factors are important in the audit process because they help in evaluating economic factors that may impact expected credit losses.
Q: How does professional judgment come into play when evaluating economic factors that may impact expected credit losses?
A: Professional judgment plays a crucial role in adjusting rates calculated in earlier steps and determining new rates based on economic factors.
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Q: How is the calculation of expected credit loss typically carried out?
A: The calculation of expected credit loss is done by applying the determined rates to the current year's receivables.
Q: Why is assessing the materiality of credit losses important in the auditing process?
A: Assessing the materiality of credit losses is important to determine the significance of client estimates and understand the impact on financial statements.
Q: What is the look-back procedure in the context of auditing receivables?
A: The look-back procedure involves analyzing the accounts receivable aging to determine the collection status of receivables.
Q: What is emphasized in the assessment of materiality and the threshold for investigation?
A: The assessment emphasizes the importance of determining materiality levels for credit losses and setting thresholds for further investigation.
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