Auditing and Assurance Name of the University Author's Name

AUDITING AND ASSURANCE Auditing and Assurance Name of the Student Name of the University Author’s note Memorandum .1 Introduction 1 Discussion 1 Business risk impact and the accounts most likely affected by the fraud at Pellegrino Shores.1 Additional audit work to be undertaken in relation to the switchover of the new patient revenue system at St Neville2 Associated audit risks .2 Two key questions to ask the internal audit.3 Justification for the audit strategy to be adopted for the audit

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student
Name of the University
Author’s note

1AUDITING AND ASSURANCE
Table of Contents
Memorandum.............................................................................................................................1
Introduction................................................................................................................................1
Discussion..................................................................................................................................1
Business risk impact and the accounts most likely affected by the fraud at Pellegrino Shores.1
Additional audit work to be undertaken in relation to the switchover of the new patient
revenue system at St Neville......................................................................................................2
Associated audit risks.................................................................................................................2
Two key questions to ask the internal audit...............................................................................3
Justification for the audit strategy to be adopted for the audit of patient revenue at St.
Neville’s.....................................................................................................................................4
Key account balances and associated risk assertions to Acuity Vision’s arrangements for
paying its sales team...................................................................................................................5
Effectiveness of the customer payments testing........................................................................6
Key assertion at risk in relation to the payment of overtimes at Pellegrino Shores...................7
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Memorandum
To: Audit Senior of Dudley Health Limited assignment
From: Audit Manager at Samway Baker Fitzgerald
Date: 03 August 2019
Subject: Advise on Audit Functions
Introduction
The primary objective of this memorandum is to bring about to the notice of the audit
senior of the assignment of Dudley Health Limited regarding the financial material
misstatements that have taken place in the company. The important incidents highlighted in
the memorandum are related to the three different fraud cases at Pellegrino Shores, St.
Neville and at Acuity Vison. The different risks that are posed to the auditors are highlighted
for all the cases and the way the auditors are going to control the situation are also evaluated.
Suitable recommendations are provided to the auditors regarding the implementation of an
effective audit strategy for handling the different cases.
Discussion
Business risk impact and the accounts most likely affected by the fraud at Pellegrino
Shores
The fraud at Pellegrino Shores took place due to a kind of misconduct by a senior
staff member of the company. It was reported that the senior staff was working with the
residents for reducing their fees and also received secret payments from them (Asare, Wright
and Zimbelman 2015). The staff was supposed to work on the resident database only for
updating changes in the room location of them. However, the staff took advantage of the

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opportunity to reduce the period of staying of the resident and also the value of the different
services provided to them.
Due to the fraudulent activity of the senior staff the, there would be downfall of the
business of the Pellegrino Shores (Anderson 2014). There would huge losses in the
investments and significant amount of legal costs to be incurred by the organisation. Along
with this, there would be erosion of confidence of the organisation in the capital markets.
The different kinds of audit assertions that are likely to be impacted due to the fraud
case would be assertions related to the disclosure of financial information. This is also related
to the assertions related to the recognition, measurement and the presentation of the financial
information (Fortvingler 2016). In this case, the most significant assertions to be affected
would be accuracy and completeness of the information contained in the financial statements.
Another assertion that will be highly affected is existence assertion. This assertion assumes
that every information recorded in the financial statements actually took place during the year
(Fortvingler 2016). Out of these assertions, accuracy is highlighted in the income statement
of the company, completeness and existence are reflected in the ending balances of accounts
and primarily in the balance sheet. All these assertions are categorised in the financial as well
as in the management assertion of the audit process. These are mostly affected due to the
fraud case of Pellegrino Shores.
Additional audit work to be undertaken in relation to the switchover of the new patient
revenue system at St Neville
Associated audit risks
An audit risk can be defined as the risk occurs due to an inaccurate audit opinion of
the auditor when the financial statements are misstated. Therefore, audit risk generally is a
function of misstatement of financial materials as well as detection risk (Vovchenko et al.

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2017). The risk becomes fundamental when the auditors do not take the necessary attempts
to check the transactions stated in the financial statements.
In the case of St Neville, there has been a shift of the revenue system and as a result
the financial statements have shown many anomalies that are significant. All the invoices of
the patients had to be re-entered due to the switchover activity. There were also complains
regarding the mismatch of the fee invoice with the agreed medical funds and the subsidy rates
of the pensioners (Gray and Debreceny 2014). The billing of the patients has been done at
lower room rate than that recorded at the database. All these activities have created
inaccuracy in the different financial statements of the company and have automatically posed
a risk for the internal auditors. It had been reported that the internal auditors are involved in
the process and they have not detected the errors of the financial statements very clearly and
concisely.
Two key questions to ask the internal audit
The internal audit team might be questioned regarding the two important elements
that are misstated in the financial statements. The first element would be double entry of the
patient’s invoices that were processed nearly before two weeks (Griffiths 2016). Another
element would be the mismatch of the invoice of the fee with the medical fund and the
pensioner subsidy rate that were previously agreed. There was also another error in the
calculation of the formula applied in the billing process due to a minor bug fixing and
software changing by the IT team (Griffiths 2016). Another element that is questionable in
this case would be invoicing people who were past patients due to sharing of the same
surname. The final element that was reported to have created an error in the financial
statements was billing of the patients at a lower room rate than what is recorded in the
database for rates.

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Justification for the audit strategy to be adopted for the audit of patient revenue at St.
Neville’s
As a result of the misstatements of the financial materials, the audit team has faced many
complicated situation where it had to provide justification of its strategies for developing an
efficient process of auditing (Golyash, Panasiuk and Sachenko 2017). The two most
important types of external audits could finance and compliance. In this case the important
considerations to be taken by the audit team for the formulation of an effective strategy could
be stated as below.
1) The objectives that have been reported to the audit team
2) The timing of the audit activity (Golyash, Panasiuk and Sachenko 2017).
3) The characteristics of the engagement whose audit task is being performed
4) The nature of communications
5) The significant factors that are involved with the activities (Golyash, Panasiuk and
Sachenko 2017).
6) The nature, timing as well as the level of resources that are available for the
engagement activity.
Taking into consideration all these items, a three-step audit strategy could be
implemented. At the first step, planning is required for the performance of the audit activity.
At the next step, suitable evidences would be gathered that would be related to the scam that
had taken place (Pomeranz, Marshall and Castellon 2014). At the final step, proper reporting
of the malfunctions or the errors might be done in order to make the authority aware of the
problems of accounts or material misstatements.

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Key account balances and associated risk assertions to Acuity Vision’s arrangements
for paying its sales team
Generally the account balances that are associated with the assertion are assets,
liabilities and equity. The key account balances that are viewed with respect to the sales team
of Acuity Vision can be the account balance related to the customer account and also with the
salary account (Knechel and Salterio 2016). This is because the material misstatements
would be naturally found in these two accounts. The transactions would normally be
reflected in the income statement.
Generally the assertions which are related to account balances are accuracy,
classification, completeness, cutoff, Occurrence and many others. In this case the base salary
received by the sales team is low and hence the income statement would lack accuracy and
completeness (Kharisova and Kozlova 2014). Therefore, accuracy and completeness can be
two important risk assertions to the Acuity Vision’s sales team. Some of the customer
payments are therefore traced back to the general ledger and the customer account at a later
date.
Implications for the control environment within DHL including specific issues to be
considered by management
Dudley Health Limited has audited the internal change that has taken place inside St.
Neville while it switched from a “homegrown” patient system to an “off the shelf” revenue
system. It was reported that the internal audit performed by Dudley Health Limited has been
involved in the process (Duke et al. 2014). Dudley Health limited was confident that the new
system would perform efficiently and at par with the previous system. However, there has
been many issues related to the newly formed system and as a result the deductions of Dudley
Health Limited has proved to be wrong. This can impose a great threat to the audit firm.

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There has been double counting of the invoices of the patients who had been already taken
into account in the previous weeks (Ozturk 2016). There are also a large number of
complaints from the recently discharged people regarding the mismatching of the fee invoices
with the agreed medical fund and the subsidy rates of the pensioners.
Another issue could be regarding the bug fixing of the calculation formula in the
software which created miscalculation of the invoices. Another problem was the double
counting of the invoices of the patients who had similar surnames. The past patients of same
surname are counted twice with the current patients. All these issues could be risky for the
audit firm as it has been accused of not detecting these errors properly.
Effectiveness of the customer payments testing
It has been said that the during the financial year, the company, that is Acuity Vision
has released medical supplies of its own brand and these are sold through direct marketing by
a sales team which is independently employed by Acuity Vision (Ozturk 2016). The base
salary as received by the sales team has been reported to be low hence a testing needs to be
done on the payments of customers.
The testing of the payments made by the customers would be effective as the original
salary of the customers would be detected through the process (Antonio 2014). At the same
time the bonus given to the sales team could be find out and its accuracy could be analysed.
Testing audit assertions for the accounts payable tests
Test type of
test key assertion reasonableness
of conclusion additional audit procedures
1 Test of
controls
Completeness There has been
no material
error found in
the test and the
result is
An additional investigation can be
carried out in order to properly
investigate the nature of the errors and
also to validate their effects.

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accepted
2 Test of
controls Classification
There has been
errors in
discounts but
they are
accepted due to
their
immateriality
An additional investigation can be done
in order to find out the sources of errors
in discounts and whether they are truly
affecting the account balances
Key assertion at risk in relation to the payment of overtimes at Pellegrino Shores
The key assertion that will be at risk due to the payment of overtimes at Pellegrino
Shores is the accuracy of the financial statement (Boudreaux and Horowitz 2014). The
important account balances will get manipulated due to the low wages paid to the employees.
A preventive and a detective internal control
A preventive internal control with respect to this case could be a higher amount of
penalty that will be imposed upon the senior staff (Joseph, Albert and Byaruhanga 2015). The
senior staff also can be terminated as she is reported to have been involved in the fraud
directly.
A detective internal control that is required to be formulated for the purpose of
minimising the assertion risk could be introduction of penalty system for all the staff
members who would be charged of doing fraudulent activities (Van Hillo and Weigand
2016). Another can be introduction of a system of rewards and recognition for all the staff
members for following the code of conduct.
Conclusion
From the above memorandum, it can be concluded that Dudley Health Limited is
involved in many fraudulent activities that has directly threatened the employees and all other
staff. The internal audit team is also involved in the process and therefore strict actions must

9AUDITING AND ASSURANCE
be taken against all the members who are accused of guilt. The issues of the case are
elaborated thoroughly along with suitable preventive measures for addressing the issues.

10AUDITING AND ASSURANCE
References
Anderson, H., 2014. Directors' Liability for Fraudulent Phoenix Activity—A Comparison of
the Australian and UK Approaches. Journal of Corporate Law Studies, 14(1), pp.139-173.
Antonio, G.R., 2014. Continuous auditing: Developing automated audit systems for fraud and
error detections. Journal of Economics, Business & Accountancy Ventura (JEBAV), 17(1),
pp.127-144.
Asare, S.K., Wright, A. and Zimbelman, M.F., 2015. Challenges facing auditors in detecting
financial statement fraud: Insights from fraud investigations. Journal of Forensic and
Investigative Accounting, 7(2), pp.63-111.
Boudreaux, E.D. and Horowitz, L.M., 2014. Suicide risk screening and assessment: designing
instruments with dissemination in mind. American journal of preventive medicine, 47(3),
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Duke, J.D., Morea, J., Mamlin, B., Martin, D.K., Simonaitis, L., Takesue, B.Y., Dixon, B.E.
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Accounting Information Systems, 15(4), pp.357-380.
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