Once an auditor has determined that accounts receivable at year-end have increased due to slow collections in a 'tight money' environment, the auditor would be likely to:
A)review the going concern ramifications.
B)increase the balance in the allowance for bad debts account.
C)expand tests for the valuation and allocation assertion.
D)expand tests for the existence assertion.

Question

Quizplus · Accepted Answer

If accounts receivable have increased due to slow collections, the auditor would want to ensure that the accounts are properly valued and allocated. Therefore, the auditor would likely expand tests for the valuation and allocation assertion to ensure that any adjustments to the allowance for bad debts account are appropriate. This would help to ensure that the financial statements accurately reflect the value of accounts receivable at year-end. Reviewing the going concern ramifications may also be necessary if collections continue to be slow, but this is not directly related to addressing the increase in accounts receivable. Expanding tests for the existence assertion would be necessary if there were concerns about the completeness or accuracy of the accounts receivable records. However, in this scenario, slow collections are likely the main reason for the increase, so expanding tests for existence would not be the most relevant course of action. Increasing the balance in the allowance for bad debts account would not be appropriate without first conducting additional tests to confirm the need for an adjustment.

Once an Auditor Has Determined That Accounts Receivable at Year-End