Current Asset ntroduction Analyzing Receivables Assessment of earnings quality is often affected by an analysis of receivables and their collectibility Analysis must be alert to changes in the allowance--computed relative to sales receivables, or industry and market conditions Two special analysis questions (1)Authenticity of Receivables Review credit policy for changes Review return policies for changes Review any contingencies on receivables (2 Collection Risk Review allowance for uncollectibles in light of industry conditions Apply special tools for analyzing collectibility Determining competitors'receivables as a percent of sales-vis-a-vis the company under analysis Examining customer concentration-risk increases when receivables are concentrated in one or a few customers Investigating the age pattern of receivables-overdue and for how long Determining portion of receivables that is a renewal of prior receivables Analyzing adequacy of allowances for discounts, returns, and other creditsAssessment of earnings quality is often affected by an analysis of receivables and their collectibility Analysis must be alert to changes in the allowance—computed relative to sales, receivables, or industry and market conditions. Two special analysis questions: (1) Authenticity of Receivables Review credit policy for changes Review return policies for changes Review any contingencies on receivables (2) Collection Risk Review allowance for uncollectibles in light of industry conditions Apply special tools for analyzing collectibility: • Determining competitors’ receivables as a percent of sales—vis-à-vis the company under analysis • Examining customer concentration—risk increases when receivables are concentrated in one or a few customers • Investigating the age pattern of receivables—overdue and for how long • Determining portion of receivables that is a renewal of prior receivables • Analyzing adequacy of allowances for discounts, returns, and other credits Current Asset Introduction Analyzing Receivables