Audit Decision Cases 11-47 asquickly as possible. In addition, BPH must have a strong risk management team to handle unique situations that may occur in hospitals such as malpractice lawsuits and periodic inspections by the state department of health and hospitals. Negative publicity for BPH could lead to decreased revenues if physicians decide to contract with a competing hospital. C114 (LO 8) Challenging ADA Auditing the existence of accounts receivable Analysis Brookwood Pines Hospital has receivables from both insurance companies and from consumers. In the past, only one in four confirmations has been returned. Internal controls have been tested and are strong. How might audit data analytics be used to collect evidence regarding the existence of accounts receiv- able? Develop a specific audit strategy for how you would screen 100% of the revenues (of a particular type). how you would identify exceptions, and how you might consider what would be acceptable varia- tions from your expectation nom versus unacceptable variations. Cloud 9 - Continuing Case Assume that you are preparing to confirm accounts receivable at $30500, as a shipment of shoes was not received until December 31, 2022, which is one month prior to the fiscal year- January 2, 2023. Further investigation showed that the cus- end of January 31, 2023. The book value of gross accounts receiv tomer ordered the goods on December 31, 2042, and they able is $71,622,804. Complete the following requirements related we're not counted in inventory when the inventory was taken to the confirmation of receivables for Cloud 9 based on previous on that date. The freight carrier came by late in the day work and the following information. and picked up the goods, even though the warehouse was Required normally shut down for inventory on December 31, 2022 The goods were shipped FOB shipping point. The receiv- a. Using PPS sampling, determine the sample size that you able was paid in full on January 29, 2022 want to use for sending accounts receivable confirmations. Draw on the information you learned about PPS sampling in . Customer No. 00651 disputed receivables in the amount of Chapter 10. The book value of accounts receivable before the $250, 750, as it had been paid on December 30, 2022. The allowance for doubtful accounts is $71,622,804. You make check from Customer No. 00651 was received and depos- the following assumptions: ited by Cloud 9 on January 3, 2022. The book value of the receivable for Customer No. 00651 at December 31, 2022 . You set tolerable misstatement for accounts receivable at was $250,750. $3,500,000. . Customer No. 00850 disputed the balance on the confirma- . Expected misstatement = $750,000. tion of $35,700 in its entirety. Further investigation showed . Risk of incorrect acceptance = 37%. that the balance was charged to the wrong customer. Goods were shipped to Customer No. 00580. On January 3, 2022 Given these parameters: theerror was discovered. A credit memo was issued to Cus- 1. What do you believe to be appropriate quali tative assump- tomer No. 00850 and an invoice was sent to Customer No tions for inherent risk and control risk given the risk of 00580, which was paid in full on January 27, 2022. incomect acceptance used? . No response was received from Customer No. 10141. 2. What do you calculate for sample size? Goods in the amount of $944,232 were shipped on Novem- 3. What do you calculate for sampling interval? ber 1, 2022. Additional goods in the amount of $131,824 were shipped on December 12, 2022 The receivable bal- b. After discussion of the sample size with Josh Thomas, the audit ance was $1,076,056 at December 31, 2122. A review of the team sets tokimble misstatement at $3,000,0300, expected mis- cash roripts journal showed that a check for $944,232 was statement at $1,750,000, and risk of incorrect acceptance at deposited on January 24, 2022. Another check for$131,824 37%. You use a sample size of 73 confirmations The sampling was received on February 1, 2023. interval is $981, 134. You may assume that except for the follows . Customer No. 21287 disputed receivables in the amount ing you received confirmations from customers that showed of $755 claiming that it did not receive a promised 1% dis- no exceptions. Determine whether the following conditions count associated with the first shipment toa new customer. re present errors for purposes of your evaluation. Based on your evaluation and the parameters of the sample you designed The book value of the receivables for Customer No. 21287 above, evaluate the result of confirming accounts receivable. at December 31, 2022 was $75,500. The customer subse- quently paid $74,745 on January 29, 2022, and Cloud 9 . Customer No. 00030 disputed the price on stock number issued a credit memo in the amount of $735. 11205, which was priced at $75 per item and should have been priced at $60 per item on 1200 items, Cloud 9issued a 1. Determine the amount of misstatement for each cus- credit memo for $18,000 on January 7, 2023. The book val- tomer listed above ue of the receivable for Customer No. 00030 at December 2. Determine the upper misstatement limit. 31, 2022, was $130,500. 3. Draw a conclusion about whether the existence Customer No. 00158 with a receivable balance of $730.225 assertion for accounts receivable is presented fairly at on December 31 disputed receivables in the amount of December 31, 2022