Certified Internal Auditor (CIA) Practice Test

When reviewing prior write-offs, which factor is critical for future account collectability?

1. Overall sales increases.

2. Economic indicators.

3. Past due amounts from clients.

4. Promotional offers to customers.

The correct answer is: Past due amounts from clients.

When reviewing prior write-offs to assess future account collectability, analyzing past due amounts from clients is crucial. This factor provides insight into the payment behaviors and trends associated with specific clients or accounts. Understanding the amounts that have previously gone unpaid can help identify patterns in delinquency, which is essential in predicting which accounts may pose a similar risk in the future. By examining past due amounts, an organization can also evaluate the effectiveness of its collection efforts and determine if specific clients are consistently unable or unwilling to pay. This knowledge allows businesses to make informed decisions about credit policies, resource allocation for collections, and whether to continue providing credit to certain clients. In contrast, overall sales increases may suggest a growing business but do not directly correlate with the reliability of client payments. Economic indicators can reflect broader market conditions, yet they do not provide specific insights into individual client payment histories. Promotional offers to customers might temporarily boost sales but can complicate the assessment of collectability if clients take advantage of promotions without a solid intention to pay.