Key Assertions and Collection of Audit Evidences

Running head: AUDITING THEORY
Auditing Theory
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Author’s Note

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Memorandum
To: Jek Porkins
From: Audit Executive
Date: 16/09/2019
Subject: Key Assertions and Collection of Audit Evidences
The business of DHL which operates and generates revenue from three different segments which
are Pellegrino shores, St Neville's and Acuity Vision. The memo concerns with the process of
audit on such segments and will be disclosing some key areas which requires second a more
expertise opinion
Business Risks and Accounts Probable to be affected by Fraud
The Pellegrino shores is a village for the retirees and the people above the age of 55 years
receive residential places from it. Business profitability is largely affected by the business risks
while also affecting its operations. As per the exposed fraud case in Pellegrino Shores, a senior
executive having access to the database of the residents could have involve in manipulating the
stay period of the residents along with the value of service (Abdullatif, 2013). There was a secret
convent between the senior executive and the residents that was the reduction in fees by her and
she would receive secret payments in exchange to these services. Any illegal acts lead to the
business risk and the same can be seen in here. In case of Pellegrino Shores, the ongoing
agreement needs to be considered as a major risk in healthcare related business since this can
manipulatively affect the business revenue while putting the goodwill of the business at stake in

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the market. Due to the presence of the accessibility to the database by the senior executive, fees
could have been manipulated by her that was charged from stated residents.
In this total case of fraud, the main accounts that are at risk are fees received account and cash
account. These fees are the main source of income of Pellegrino Shores that the residents pay
and there could be major direct adverse impact on this revenue due to the presence of this fees
related fraud. Along with this, this fraud would create major adverse impact on the cash flow of
Pellegrino Shores since this would result in decrease in cash flows against the anticipation. The
duty of the auditor is to undertake proper examination of these accounts at risk through the
application of relevant audit procedures for misnaming the risk. All the records of the business
need to be checked by the auditors in order to ensure the truthfulness and fairness of all financial
transitions (Brazel, Jones & Prawitt, 2013).
Key Assertion
Fees received
 It is required for the auditor to involve in checking the existence and occurrence assertion
associated with the transactions in order to assess the truthfulness off the revenue
recorded in the accounting books of Pellegrino Shores. Moreover, it is required from the
auditor to perform the necessary audit procedures for ensuring the fees received recorded
in the accounting books are of appropriate value and there has not been any manipulation
in the same (Bumgarner & Vasarhelyi, 2018).
 Completeness needs to be considered as another major assertion associated with revenue
that the auditor needs to consider. The requirement is to check the value recorded of
revenue with the database of the residents in order to confirm their adding up (Titera,
2013).

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Cash Balance
 The most crucial assertion with cash balance that the auditor needs to take into account is
completeness that helps in assessing whether there has been appropriate maintenance of
financial records by Pellegrino Shores. The need for the auditor is to carefully observe
and read all cash receipts and payments of the firm.
 Accuracy needs to be considered as another assertion associated with cash records; and
the auditors must undertake balancing the cash receipts and cash payments that the
business has made during the period (Kharisova & Kozlova, 2014).
St Neville’s Audit Work
a) The identifiable audit risk from the switchover to new DHL billing system from homegrown
patient revenue are discussed below.
o There is not any backup data or proper master file in the new billing system that can be
considered as the key reason of experiencing data loss by the management of St Neville's
because of the power surge. In this circumstance, it was needed for the management to
re-enter the patient data from the last two weeks. This whole situation might lead to the
accidental data omission by any staff that can materially misstate the process of reporting
(Pizzini, Lin & Ziegenfuss, 2014).
o A Bug created major effects on the billing formula that the business uses and this needs
to be considered as the main reason of the inability of the billing system for considering
the effects of agree medical fund and rates of pensioner’s subsidy. This particular defect
in the system can create significantly affect the whole revenue reporting process which
eventually can materially misstate the financial reports of the entity (Newton et al., 2015).
o Apart from the above, bills in the names of past patients are printed from the system that
can again leaf to overstatement of financial reports in the negative manner and the
financial position of the company can be affected by this.
b) The question that the internal audit team need to be asked related to the new billing system are
mentioned below: