Which of the following is the most likely cause of the decrease in accounts receivable turnover?

The following questions concern analytical procedures in the sales and collection cycle. Choose the best response.
a. As a result of analytical procedures, the auditor determines that the gross profit per-
centage has declined from 30 percent in the preceding year to 20 percent in the cur-
rent year. The auditor should
(1) express a qualified opinion due to inability of the client company to continue as
a going concern.
(2) evaluate management’s performance in causing this decline.
(3) require footnote disclosure.
(4) consider the possibility of a misstatement in the financial statements.
b. An auditor’s preliminary analysis of accounts receivable turnover revealed the following rates over these accounting periods:
2019 2018 2017
4.3 6.2 7.3
Which of the following is the most likely cause of the decrease in accounts receivable
turnover?
(1) Increase in the cash discount offered
(2) Liberalization of credit policy
Chapter 16 / COMPLETING THE TESTS IN THE SALES AND COLLECTION CYCLE: ACCOUNTS RECEIVABLE 561
(3) Shortening of due date terms
(4) Increased cash sales
c. After a CPA has determined that accounts receivable have increased as a result of slow collections in a “tight money” environment, the CPA will be likely to
(1) expand tests of collectibility.
(2) review the going concern ramifications.
(3) review the credit and collection policy.
(4) increase the balance in the allowance for bad debt account

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