Final answer:
A CPA would likely increase the balance in the allowance for bad debts account and expand tests regarding the collectability of receivables when accounts receivable has increased due to slow collection in a 'tight money' environment.
Step-by-step explanation:
When a CPA determines that accounts receivable has increased due to slow collection in a 'tight money' environment, they would likely take certain actions to address the issue. One of the actions would be to increase the balance in the allowance for bad debts account. By doing so, the CPA would be accounting for the potential increase in bad debts and ensuring that the financial statements reflect the true value of accounts receivable.
In addition, the CPA may also expand tests regarding the collectability of receivables. This means conducting more detailed analyses of individual customer accounts to assess their likelihood of being collected. This is especially important in a tight money environment where liquidity and creditworthiness can be compromised.
However, it is important to note that while the CPA may recommend a tightening of the entity's credit policy as a potential solution, this decision ultimately lies with the management of the entity and their assessment of the impact it might have on sales and customer relationships.