Proper credit approval for sales helps minimize the amount of bad debts and the collection effort for accounts receivable by requiring that each sale be evaluated for collection potential.
Adequate controls in the credit function enable the auditor to place more reliance on the clients estimate of uncollectible accounts. Without these controls, the auditor would have to make his or her own credit checks on the customers in order to be convinced that the allowance for uncollectible accounts is reasonable.
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