C is corrent because during a period of slow collections caused by "tight money," the primary problem is to ascertain that the account is properly valued. Expanding the tests of collectibility would allow the auditor to determine if the accounts are collectible.
A is incorrect because the auditor does not increase (or decrease) balances, although collectibility tests may result in a proposed adjustment to the allowance for bad debts account.
B is incorrect because a review of the credit and collection policy would not allow the auditor to examine the primary problem of whether the accounts are properly valued. It is not the collection policy which needs to be reviewed as much as the actual collectibility of the individual accounts.
D is incorrect because any going concern ramifications would be considered subsequent to collectibility tests, if at all.
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