Question 1

Audit steps for the revenue cycle are anchored in the overall audit plan.

Accepted Answer

Audit steps for the revenue cycle must be included in the overall audit plan, as the revenue cycle is a significant component of an organization's financial statements. The audit plan should outline the objectives, scope, timing, and resources required to effectively audit the revenue cycle.

Question 2

The last steps of an integrated audit are to understand the industry and contract with the client to do the audit.

Accepted Answer

The last steps of an integrated audit typically involve evaluating the results of the audit, completing the audit report, and providing recommendations for improvements to the client. Understanding the industry and contracting with the client generally occur earlier in the audit process.

Question 3

Health-care providers sell a:

Accepted Answer

Health-care providers offer medical services to their patients, such as diagnoses, treatments, and preventative care. They do not typically sell physical products like drinks or food, and while they may encourage healthy lifestyle choices, they do not sell a specific "way of life."

Question 4

An alternative to a fee-for-service plan is a(n):

Accepted Answer

A capitation agreement is an alternative to a fee-for-service plan where healthcare providers are paid a fixed amount per patient for a certain period of time, regardless of the number of services provided. This incentivizes healthcare providers to focus on preventive care and keeping patients healthy, rather than just providing treatments for illnesses. Co-payments, third-party payers, service contract fees, and unbilled service agreements are all different payment methods that can be used within a fee-for-service plan, but they are not alternatives to the plan itself.

Question 5

A classic fraud scheme related to cash receipts known as lapping is possible when poor segregation exists for duties of cash receipts and posting accounts receivable.

Accepted Answer

Lapping is a real fraud scheme that takes place when there's a lack of proper segregation of duties with regards to cash receipts and posting of accounts receivable. The scheme involves the manipulation or covering up of one debtor's unpaid receivable with another debtor's payment or subsequent receivable. This can be done to hide embezzlement or other fraudulent acts.

Question 6

The simplest retail transaction is one for:

Accepted Answer

The simplest retail transaction is a cash transaction where the customer exchanges cash for goods at the point of sale. This type of transaction does not involve credit or any other forms of payment, making it the easiest and most straightforward transaction.

Question 7

Accounts involved in the sales and collection cycle include all of the following except:

Accepted Answer

Purchase Returns and Allowances are not involved in the sales and collection cycle as they are accounts related to the purchasing cycle. The accounts involved in the sales and collection cycle include Cash, Accounts Receivable, Sales, and Bad Debt Expense.

Question 8

Health-care providers in the United States are often paid by:

Accepted Answer

Health-care providers in the United States are often paid by third-party payers, such as private insurance companies or government programs like Medicaid and Medicare. This means that the payment for health services is made by someone other than the individual receiving the care.

Question 9

Lapping occurs when an employee steals cash and manipulates the accounts receivable entries to hide the theft.

Accepted Answer

Lapping is a form of fraud where an employee steals cash and covers it up by using incoming accounts receivable to pay off outstanding accounts receivable. This manipulation of the accounts allows the employee to continue stealing while hiding the theft.

Question 10

A typical transaction activity for sales, billing, and cash receipts are:

Accepted Answer

Estimating bad debts expense is related to sales, billing, and cash receipts as it involves assessing the collectability of receivables from sales.

Question 11

A retail entity's primary business activity is selling finished goods inventory to a customer for:

Accepted Answer

While a retail entity may accept both cash and credit as payment options, the primary business activity involves selling finished goods inventory to a customer, which can be done either through cash or credit transactions. Therefore, option C is the best choice as it encompasses both payment methods. Options A, D, and E may pertain to specific cases, but they do not apply to the entity's primary business activity.

Question 12

When a sale is conducted using a credit card, the invoice:

Accepted Answer

When a sale is conducted using a credit card, the invoice or statement detailing the transaction is typically sent from the credit card company to the customer. This invoice includes all transactions made with the credit card, not just the specific sale with the retailer/vendor.

Question 13

Sales returns and allowances remain constant in their magnitude and never need differing levels of control and approval.

Accepted Answer

Sales returns and allowances may vary in their magnitude, depending on the nature of the business and the types of products being sold. Additionally, different levels of control and approval may be necessary depending on the size and complexity of the organization and the value of the returns or allowances. Therefore, it is false to say that sales returns and allowances always remain constant and do not require differing levels of control and approval.

Question 14

The AICPA guidance defines fourteen management assertions, and the PCAOB standards utilize six.

Accepted Answer

The AICPA guidance categorizes management assertions into three categories: transactions and events, account balances, and presentation and disclosure, not fourteen. The PCAOB standards identify management's assertions within significant accounts and disclosures in financial statements, but they focus on the auditor's responsibility to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, rather than specifying a fixed number of assertions.

Question 15

All transactions in the sales and collection cycle need not be recorded at the correct amounts.

Accepted Answer

All transactions in the sales and collection cycle should be recorded at the correct amounts in order to ensure accurate financial reporting and prevent misstatements or errors. Mistakes in recording transactions can lead to incorrect financial statements and mismanagement of funds. Therefore, it is essential to record all transactions accurately in the sales and collection cycle.

Question 16

Health-care providers exemplify the revenue and collections transactions cycle because their activities include all of the following except:

Accepted Answer

Health-care providers do not typically settle sales via cash; instead, they bill patients and insurance companies for services rendered. Therefore, all of the choices are correct except B.

Question 17

The auditor evaluates ICFR to determine whether it operates effectively.

Accepted Answer

This is true. The auditor evaluates ICFR (Internal Control over Financial Reporting) to determine whether it is operating effectively in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.

Question 18

Typical transaction activities for sales, billing, and cash receipts include all of the following except:

Accepted Answer

The typical transaction activities for sales, billing, and cash receipts include sales, billing, cash receipts, sales returns and allowances, estimating bad debt expense, and accounts receivable. Cash disbursements, on the other hand, are not a typical transaction activity for these processes as it pertains to the company's payments for expenses and not the customer's payments for products or services.

Question 19

Tests of details of balances provide evidence about whether ICFR is operating as designed and whether the control is being performed by someone with appropriate authority and qualifications.

Accepted Answer

Tests of details of balances primarily focus on the accuracy, existence, and rights and obligations related to financial statement balances and transactions, rather than directly assessing the operating effectiveness of internal controls over financial reporting (ICFR).

Question 20

Documented approvals of write-offs of accounts receivable are required before transactions are recorded.

Accepted Answer

According to generally accepted accounting principles (GAAP), documented approvals of write-offs of accounts receivable are required before transactions are recorded. This ensures that write-offs are properly authorized and supported by evidence of the debt being uncollectible.

Quiz 10: Auditing Revenue Process: Sales, Billing and Collection in the Health-Care Provider and Retailing Industries