Final answer:
True. Auditors use the accounts receivable turnover ratio to analyze a company's credit policies. Changes in this ratio can indicate the effectiveness of these policies and their impact on the company's cash flow and liquidity.
Step-by-step explanation:
Auditors indeed use trends in the accounts receivable turnover ratio to assess the reasonableness of a company's credit policies. So, the answer to the question is A) True. The accounts receivable turnover ratio is an efficiency ratio that measures how effectively a company is managing its credit by comparing net credit sales to average accounts receivable.
An increasing trend in this ratio may indicate that the company is collecting its receivables more quickly, suggesting stringent credit policies. On the other hand, a decreasing trend could indicate that receivables are being collected more slowly, which might reflect more lenient credit policies.
This ratio is critical in helping auditors, investors, and management understand how the company's credit policies are affecting liquidity and cash flow.