@jeff
For AUD sim #33: The given information seems to run contradictory to the some of the answers. The exercise is to identify significant deficiencies that can cause certain potential misstatements. One of these is:
3. Accounts receivable may be understated because write-offs of accounts receivable could be approved for accounts that are, in fact, collectible; or accounts receivable may be overstated because write-offs of accounts receivable might not be recorded for accounts that are uncollectible.
The answer is: The employees who approve credit also approve write-offs of uncollectible accounts.
However, no where in the given information:
A CPA's audit workpapers include a narrative description of the cash receipts and billing portions of the internal control of Parktown Medical Center, Inc. Parktown is a small health care provider owned by a publicly held (issuer) corporation. It employs 7 salaried physicians, 10 nurses, 3 support staff in a common laboratory, and 3 clerical workers. The clerical workers perform tasks such as reception, correspondence, cash receipts, billing, and appointment scheduling, and are adequately bonded. They are referred to below as the office manager, “Clerk 1,” and “Clerk 2.”
Most patients pay for services by cash or check at the time services are rendered. Credit is not approved by the clerical staff. The physician who is to perform the respective services approves credit based on an interview with the patient. When credit is approved, the physician files a memo with the billing clerk (Clerk 2), who sets up the receivable using data generated by the physician.
The attending physician prepares a charge slip that is given to Clerk 1 for pricing and preparation of the patient's bill. Clerk 1 transmits a copy of the bill to Clerk 2 for preparation of the revenue summary and for posting in the accounts receivable subsidiary ledger.
The cash receipt functions are performed by Clerk 1, who receives cash and checks directly from patients and issues a prenumbered cash receipt to each patient. Clerk 1 opens the mail, immediately stamps all checks “for deposit only,” and prepares a list of cash and checks for deposit by the office manager. The list of cash and checks together with the related remittance advices are forwarded by Clerk 1 to Clerk 2. Clerk 1 also serves as receptionist and performs general correspondence duties.
Clerk 2 prepares and sends monthly statements to patients making payments during the month and also to those patients with unpaid balances. Clerk 2 also prepares the cash receipts journal and is responsible for the accounts receivable subsidiary ledger. Clerk 2 is the only clerical employee permitted access to the accounts receivable subsidiary ledger. When the physician who performed the respective services believes an account to be uncollectible and communicates uncollectible account approval to the office manager, the office manager issues a write-off memo to Clerk 2. Clerk 2 receives the memo and writes off the account.
The office manager supervises the clerks, issues write-off memos, schedules appointments for the doctors, makes bank deposits, reconciles bank statements, and performs general correspondence duties.
Additional services are performed monthly by a local accountant who receives summaries prepared by the clerks and posts them to the general ledger, prepares income statements, and files the appropriate payroll forms and tax returns. The accountant reports directly to the parent corporation.
does it say that the same person is responsible for issuing credit and authorizing writeoffs of uncollectibles. In fact, the doctor is responsible for issuing credit and the office manager is responsible for issuing write-off memos.
I guess my question is, how am I supposed to know whether or not to ignore the given information or not? What am I not seeing?
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