Paul_M
Posts: 91
Joined: Apr 2003
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Tuesday August 28, 2012 2:56 PM
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D&B’s are simply one tool the company should use to determine an appropriate credit limit. There is no such thing as an “accurate” credit limit. Credit limits are simply guidelines for a company to follow in making the decision as to how much credit and under what terms it should extend credit to a particular customer. Other business considerations will often be taken into account in determining credit limits.
Dun & Bradstreet has its own methodology for developing recommended credit limits. Other credit agencies have their own models.
From an audit perspective, what is important is whether the company has a standardized process and policies to make credit decisions, whether those policies have been determined by personnel with relevant skill and experience, and whether management has reviewed, understood and approved those policies.
The IIA's GAIN published a Knowledge Alert titled “What’s Next for Internal Auditing: Expanding the Focus to Address Emerging Risks” in August 2009. The publication focused on credit risks, risks due to cost/expense reduction and containment activities, risks due to exposure to distressed third parties, liquidity risks, and reputation risks. There’s an excellent table on audit practices to address credit risks.
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