Which of the following procedures would provide the best evidence of the effectiveness of a credit-granting function?
Which of the following procedures would provide the best evidence of the effectiveness of a credit-granting function?
The best evidence of the effectiveness of a credit-granting function would be to check for evidence of credit approval on a sample of customer orders. This approach directly assesses whether the credit-granting procedures are being correctly followed and if proper approvals are in place before granting credit. Observing the process may provide an understanding of how the function operates, but it doesn't verify the outcomes. Reviewing the trend in receivables write-offs looks at historical data but does not directly address current procedure adherence or approval accuracy. Asking the credit manager about the effectiveness is subjective and not reliable.
If the credit granting function is effective, then the write-offs would be minimal.
But you do not know if the non-functional loan unit effectiveness is covering the granting function non effectiveness, so I still do not understand.... very unprecise
This does not make sense at all. We need an explanation please. I feel that observing the process is more effective than reviewing write off trend.
Observation gives a snapshot of the situation. It does not account for the effectiveness of the function over time. The very purpose of the function is to grant credits that remain in a good state. If there is a high breakage rate (write-offs), the function is not effective.
Didnt understand this. Can anyone please explain?
Review the trend in receivables write-offs. The correct answer should be B: This method provides objective, outcome-based evidence of the effectiveness of the credit-granting function by showing how well the credit decisions are performing over time.