Student Forums CMA Part 1 Section E: Internal Controls E.1. Governance, Risk, and Compliance Exam succes question about credit approval procedures

Exam succes question about credit approval procedures

  • This topic has 2 replies, 2 voices, and was last updated 3 years ago by Alexey Gnoevoy.
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  • #106946
    Alexey Gnoevoy
    Participant

    Hello,

    Can you help me please to undestand the following question?

    CIA 1187 I.43 – “Which of the following credit approval procedures would be the basis for developing a deficiency finding for a wholesaler?”
    My answer: “Trade-credit standarts are reviewed and approved by the finace committee of the board of directors”
    Correct answer: “Salespeople are responsible for evaluating and monitoring the financial condition of prospective and continuing customers”

    My confusion comes out that explanation for correct answer states that question was about what inapropriate basis for developing procedures, while i read as what best the solution basis? Am i miss read the question?

    Explanation for correct answer: “Salespeople should not be responsible for monitoring customers’ financial condition. Salespeople make contact with customers and potential customers, make sales and provide customer service where appropriate. If salespeople are responsible for credit approval, their conflict of interest (desire to make the sale) could lead to inappropriate approvals. There should be a separate credit approval function.”

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  • #106951
    Brian Hock
    HOCK international

    Alexey,

    If salespeople determined who receives credit, anybody who walks into the store would be given credit so that the salespeople could sell more and get a higher commission. The term inappropriate is in reference to the salespeople giving credit to people that they should not.

    Does this help?

    brian

    #106964
    Alexey Gnoevoy
    Participant

    Brian, Thank you, I understand now!

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