Auditing Report: Analyzing Business Risks, Assertions, and Audit Work

This report addresses various auditing matters, focusing on business risks, key assertions, and audit procedures for different scenarios. It begins by examining the fraud risks in Pellegrino Shores, highlighting the impact on revenue and cash accounts, and emphasizing the importance of verif...Read More

Running head: AUDITING
Auditing
Name of the Student:
Name of the University:
Author’s Note

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Memo
To: Jek Porkins
From: Audit Executive
Date: 9/09/2019
Subject: Auditing Matters and Key Assertions
The memo would be focusing significant audit information which is available from the
cases which is present for DHL. The memo would be discussing different aspects which the
auditor needs to consider before formulating an opinion regarding the financial statements of the
business.
Business Risks and Accounts which are likely to be Affected by Fraud
The Pellegrino shores is a retirement village which provides a place of residence of
people are above the age of 55 years. The business risks are the risks which can impact the
profitability of the business and affect the operational process of the business. The fraud case
which was discovered in Pellegrino Shores exposed a senior executive who had access to
resident database and could have manipulated resident stay period and also the value of services
which is followed by the business (Azim 2013). The senior executive had a secret agreement
with the residents that she would be reducing their fees and charges in exchange of secret
payments which was to be made to her. This can be considered as a serious risk in a healthcare
business as this would affect the revenue of the business and also the reputation of the business
in the market. The senior executive had access to resident database and therefore could have
manipulated the fees which was charged from specified residents.

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The key accounts which were at risk in such a situation was the cash account and fees received
account. The main source of income for Pellegrino shores was from the fees which is received
from the residents and due to fraudulent activities in the operations of the business, the revenue
of the business would be directly affected. The cash flow of the business would also be one of
the accounts which would be affected as the lower cash inflow would be there in comparison to
what is anticipated. The auditor needs to check these accounts and apply proper auditing
procedures in order to ensure that the balances which are represented in the financial statement
(Brandas, Stirbu and Didraga 2013). The auditor of the business needs to check all the records of
the business so as to ensure that all other transactions which are covered in the financial
statement are showing true and fair view.
Key Assertions
Fees Received
 The auditor needs to check the assertion of existence and occurrence of the transactions
in order to ensure that the revenue which is shown in the books of accounts are genuine.
In addition to this, the auditor needs to ensure that amounts which are shown in the books
of accounts for the fees received for different services are of accurate value and the same
are not reduced or manipulated in any manner (Carson, Fargher and Zhang 2016).
 Another major assertion which the auditor of the business needs to consider is the
completeness of the revenue which is shown in the financial statements. The auditor must
check with the resident database so that it can be confirmed that the total adds up.
Cash Balance

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 The first major assertion which the auditor needs to consider is that of completeness
which would determine whether the financial records are appropriately maintained by the
business (Christensen, Elder and Glover 2014). The auditor for such a purpose would go
through all cash receipts and payments of Pellegrino shores.
 The second assertion which the auditor would be considering is the accuracy of the
records of cash and in order to ascertain this the auditor needs to balance the cash receipts
and cash payments which is made by the business during the period.
Audit Work for St Neville's
a. The audit risks which can be identified from the switchover from 'homegrown' patient
revenue system to new DHL billing system are listed below in details:
 The new billing system does not have a backup data or a proper master file which is the
main reason that the management of St Neville's experienced loss data when there was a
power surge. In such a case, the management was required to re-enter the data of the
patients from previous 2 weeks. In such a situation, there is every possibility that the staff
member might accidently omit a data which can result in risks of misstatement in the
reporting process.
 The billing formula which is used by the business is affected by a Bug which is the main
reason that the billing system is unable to consider the effects of agreed medical fund and
pensioner subsidy rates (Groomer and Murthy 2018). This system defect can affect the
entire reporting process for the revenue and thereby cause a major misstatement in the
financial statements of the business.

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 In addition to this, the system often prints bills in names of past patients which would
again overstate the financial statement of the business in an adverse manner and thereby
affect the financial position of the business.
b. The question which needs to be asked from the internal audit team is relating the new billing
system which has been implemented are listed below:
 Has the testing of the new billing process been done by the internal audit team and what
were there findings?
 Has the implementation process of the new billing system been done under the supervisor
of the internal audit team?
c. The auditor the business needs to conduct a detailed and through investigation of the new
billing system and revenue records which is prepared by the business. Auditor should check
the bill book, bill register and copy of bills and the same should be matched with the records
of the fees which is charged by the doctors, for medicines and for room charges. The bills
need to be checked according the fees structured which is followed by the private nursing
home. In addition to this, any arrears in the bills also needs to be checked so that the revenue
which is shown in the financial statements are complete for the period.
Analysis of Acuity Vison
a. The key accounts which can be recognized to be at significant risks are the sales account and
the inventory account which is maintained by the business of Acuity Vision. The key
assertions which are associated with the two accounts are listed below in details:
Sales
 The main assertion which can be identified for the sales of the business of Acuity Vison
is the assertion of occurrence. This means that the auditor needs to ensure that the sales of

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the medical supplies actually took place and ensure that the entries for sale are genuine
which are entered in the financial statements (Hay, Knechel and Willekens 2014).
 The auditor also needs to check if the sale took place during the period for which the
accounting records are maintained by the business.
Inventory
 The primary assertion which is at risk is the existence of the inventory which the auditor
needs to check effectively the inventory register for getting a good idea regarding the
inventory count of medical supplies of the business. The existence of the inventory in the
business needs to be assessed considering the stock which is maintained by the business. Another assertion which is at risk is the assertion of valuation which considers whether
the financial statements are showing appropriate value for the inventory of the business
(Jans, Alles and Vasarhelyi 2014). The auditor needs to physically value the stocks of the
business and ensure that the same are consistent with the value which is portrayed in the
financial statements of the business.
b. The control environment is an important aspect which the auditor needs to consider while
planning the audit process. The management of DHL needs to appropriately consider the new
billing system which is being implemented in St Neville's and ensure that the some of the
weaknesses which is present in the internal control system needs to be controlled by the
business (Kharisova and Kozlova 2014). In addition to this, proper control needs to be
established in Pellegrino shores so that there is no incident of fraud in future. The resident
database for Pellegrino shores should not be available to everyone and the access to the same
should be maintained by only some top officials. This would ensure that the fraud does not
takes place in future. In addition to this, the management needs to maintain a proper backup

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for patient data at St Neville's so that the billing process can be efficiently carried out and
appropriate revenue can be shown in the financial statements of the business. Further the
management of the company needs to supervise the process of the sales team at Acuity Vison
so that the process remains transparent and there is no discrepancies involved in the same.
c. The auditor can check into the operations of the sales team of Acuity Vison for ascertaining
the how customer payments are received and whether proper invoices are maintained for the
sale of medical supplies. The auditor of the business also needs to check the cash which is
collected with the amount which is recorded in the books of accounts of the business
(Knechel and Salterio 2016). The auditor can also check the general ledger accounts and the
customer account so that the auditor can satisfy himself that there are no discrepancies in the
financial reports.
Account Payables Testing
Test type of test key
assertion
reasonableness of
conclusion additional audit procedures
1 Test of
Control
Assertion
of
Accuracy
The auditor needs
to check if the
supplier
information which
are shown are
accurate or not and
on the basis of the
same audit
procedures are to
be applied by the
auditor
The auditor would be applying
verification procedures so that the
auditor is able to understand the
accuracy of the balances. If need be
arising, the auditor can also opt for
external confirmation for the balances.
The auditor would also be confirming
the balances of the payables by
verifying the records of the purchases
which is made by the business during
the period. The auditor needs to focus
on the numerical values which are
presented in the financial statements
and ensure that the liabilities side is
fairly represented by the management
of the company.
2 Test of Assertion The auditor needs The auditor would be applying audit

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Substantive of
Relevance
to appropriate
consider the
relevance of the
price charges and
the discounting
policies and
confirm whether
the same are
consistent with the
general structure
which is followed
by the business.
procedures of vouching for ascertaining
if the balances which is shown in the
accounting books are accurate or not.
The auditor would also be applying
sampling procedures for identifying the
population which is most affected as
per the estimation of the auditor of the
business. The auditor also needs to
check the amount of sales and on the
basis of the same the auditor needs to
ascertain whether is showing. The sales
which is made by the business
determines the amount of discounts or
rebates which would be applicable to
the customer.
Key Assertions of Pellegrino Shores
The key assertions which can be identified for the business of Pellegrino Shores payroll system
is the accuracy of the payments which are made to the employees of the business for the
overtime period as per the requirement of the business. The major risks which is faced by the
business in terms of payroll is that the accuracy in computing the amounts of payments which is
to be paid to the employees may be in appropriate. The management also needs to record such
overtime expenses in the financial statement of the business and there is a high chance that the
financial statement of the business might be misrepresented. There is no clear computation
process established for computing the payroll of the employees of the business and this will be
creating discrepancies in the reporting framework which is followed by the business. The auditor
of the business needs to check the internal control system of the business for the purpose of
ensuring that the same is strong so that reliance can be established on the same for collecting
appropriate evidences. The auditor of the business needs to consider the nature of the business
before considering the financial statement of the business. The auditor of the business needs to

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consider the payroll process which is established in the business and the formula which is used
by the management of the company for ascertaining the amount which is to be paid to the
employees of the business for the overtime work which is carried out by them in their work
process. The auditor further needs to check the rates at which the overtime wages are allowed by
the management of Pellegrino Shores so that the auditor can confirm that the same is consistent
with the rates which are established by the organizational structure. The auditor can also check
computerized accounting system which might be used by the management of the company for
the purpose of meeting the efficiency in meeting the payments for the overtime payments for the
employees of the business. The internal control system which is formulated by the management
of the company is effectively formulated to assist the business to control the operations of the
business. The auditor needs to apply test of controls so that the strengths of the internal control
can be established and it is to be noted that the auditor would collecting appropriate and
sufficient audit evidences on the basis of the appropriateness of the internal control system of the
business.
Reference

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Azim, M.I., 2013. Independent Auditors Report: Australian Trends From 1996 to 2010. Journal
of Modern Accounting and Auditing, 9(3), p.356.
Brandas, C., Stirbu, D. and Didraga, O., 2013. Integrated approach model of risk, control and
auditing of accounting information systems. Informatica Economica, 17(4), pp.87-95.
Carson, E., Fargher, N. and Zhang, Y., 2016. Trends in auditor reporting in Australia: a synthesis
and opportunities for research. Australian Accounting Review, 26(3), pp.226-242.
Christensen, B.E., Elder, R.J. and Glover, S.M., 2014. Behind the numbers: Insights into large
audit firm sampling policies. Accounting Horizons, 29(1), pp.61-81.
Groomer, S.M. and Murthy, U.S., 2018. Continuous auditing of database applications: An
embedded audit module approach. In Continuous Auditing: Theory and Application (pp. 105-
124). Emerald Publishing Limited.
Hay, D., Knechel, W.R. and Willekens, M., 2014. Introduction: The function of auditing. In The
routledge companion to auditing (pp. 23-32). Routledge.
Jans, M., Alles, M.G. and Vasarhelyi, M.A., 2014. A field study on the use of process mining of
event logs as an analytical procedure in auditing. The Accounting Review, 89(5), pp.1751-1773.
Kharisova, F.I. and Kozlova, N.N., 2014. Applying the category of «Assertions (or
preconditions)» In audit of financial statement. Mediterranean journal of social sciences, 5(24),
p.180.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.