When a Compensating Control Exists,a Weakness in the System

question 23

Multiple Choice

When a compensating control exists,a weakness in the system

• A)is no longer a concern because the potential for misstatement has been sufficiently reduced.
• B)is reduced but not removed;therefore,it is still of concern to the auditor.
• C)could cause a material loss,so it must be tested using substantive procedures.
• D)is magnified and must be removed from the sampling process and examined in its entirety.

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Definitions:

Insurance Policy

A contract between an insurer and a policyholder that provides compensation for specified losses in exchange for premiums paid.

Capitation

The health care provider is paid a fixed amount per member per month for each patient who is a member of a particular insurance organization regardless of whether services were provided.

Precertification

Refers to obtaining plan approval for services prior to the patient receiving them; refers to seeking approval for a treatment (surgery, hospitalization, diagnostic test) under the patient’s insurance contract.

Specified Outpatient

Specified Outpatient refers to particular outpatient medical treatments or procedures that are predefined under a health plan or policy for coverage or reimbursement.