Auditing 11 - DHL Audit Report: Risk, Procedures, and Findings

This report presents an audit of Dudley Health Limited (DHL), encompassing its subsidiaries: Pellegrino Shores, St Neville's, and Acuity Vision. The audit, conducted by Samway Baker Fitzgerald (SBF), addresses key risks and issues. At Pellegrino Shores, the report examines a fraud involving a senior staff member and residents, assessing the impact on financial statements and proposing audit procedures. The St Neville's section evaluates the new patient revenue system, identifying associated risks such as the occurrence of transactions and accuracy and valuation. The report also includes a discussion of the audit strategy, internal audit questions, and verification procedures. For Acuity Vision, the report assesses risks related to salary and wage accuracy and cut-off, discussing management's role in addressing these issues. The audit also covers the testing of customer payments and supplier invoices, evaluating materiality and control environment effectiveness. The report concludes with an analysis of substantive tests and tests of control, including key assertions, conclusions, and additional audit procedures.

Running head: AUDITING
Auditing
Name of the student
Name of the university
Author note

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TO: Jek Porkins
FROM: Samway Baker Fitzgerald
CC:
DATE:
SUBJECT: Auditing
This memo has been written to the senior auditor of DHL to inform him about the risk
assertion of the business that the company owns. The solution has been provided in the form
of question and answers.
Answer to question 1
The Dudley health Limited has own three services, Pellegrino shores is one of them.
This is a village for the retired person which is located in Port Macquarie. There has been a
fraud identified at the Pellegrino shores. According to the case study, senior staff member at
Pellegrino shores has been working secretly with number of residents who all came to stay.
This has been identified that the senior staff member was decrease the fee in exchange of
some secret payments from the residents. The fraud was detected by a fellow employee who
you heard the senior staff discussing with the member about the scam. This will result in
impact of business, the profit of the company will get reduced. The information’s are not
getting recorded in the accounts for which a misstatement of goods appeared in the financial
statements. The information related to the payments of residents staying at the villages will
not be found latter. The staffs generally do not record all these type of scams in the account
so some information may not be there and the company will not get the proper information of
their low profit generation. Assertions relating to presentation and disclosures are,
completeness, classification and understand ability, accuracy and valuation, occurrence.

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According to the data provided in the question, there is a risk assertion of accuracy and
valuation, completeness that are related to presentation and party disclosures of the accounts.
Accuracy and valuation of risk assertion means that the transaction and events that occur at a
particular time in a year needed to be recorded in the financial statement of the entity (Titera
2013). The appropriate amount should be disclosed properly in the accounts. Assertion of
Completeness means that all the transaction that occurs and take place should be disclosed in
the accounts and in the financial statements of the company. According to the information,
the senior staff has the authority to update the location of the room and can reduce the time of
the residents that were staying (Skaife, Veenman & Wangerin 2013). This the reason why the
senior staff can perform such scam for many days. The required audit procedure needed to be
followed for the above risk identified is that the auditor should verify the financial records
with the guest list and the relevant fair that is allocated for every room. Physical verification
is required for the confirmation of the risk assertion related to the presentation and disclosure
of the related parties.
Answer to Question 2
The patient revenue system of St Neville’s has recently changed. The DHL “off the
shelf” is the revenue system that is being used for the revenue collection. The new system
will perform all the related function that was performed by the previous system. The previous
system of St Neville’s is used to do the billing of the patients produce the invoice to give the
patients and also have the formula that are needed to calculate the approximate amount that
needed to be charged from the patients (aasb.gov.au. 2019) The system maintain a database
of the patients and keep a record of the rates that shows all accommodation rates for billing,
discounts rebate and the benefits that are assist by the governments. The necessary risk that
are associated is that the occurrence of the transaction. This means that the related
transactions of St Neville’s that takes place during the year is disclosed in the financial

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statements and is related to the entity or not. The maintaining of the patient database and
keeping the records of all discount rates or not. The other risk that is associated is accuracy
and valuation (Glover & Prawitt 2014). This means that the invoices that are generated from
the machine is appropriate or not. The amount of the invoices are disclosed and calculated
properly or not. The two key question that could be ask to the internal audit is that is the
internal auditor is aware of any possible or true illegal or questionable payments? And the
other one is that is he aware of any related party transaction that is not being disclosed in the
financial report? The reason behind asking this will help the auditor to confirm all the risk
that are related with the presentation and disclosure of the new revenue system that has been
set up in St Neville’s. The auditor will get to know the information and the events that occurs
inside the organisation. The strategy of the auditor should include of a physical verification of
the revenue generation system. The auditor should fix a day for the visit. The auditor should
verify the discounts rates and other government subsidies with the records that the machine
has. The main strategy of the auditor is to verify and confirm the occurrence of transaction in
the financial reports of the company. The auditor should verify the accuracy and valuation of
the system that the bills and the invoice that are generating from the system are accurate or
not. Verification of the staff is also need to perform by the auditor as because it is required to
see that they know the exact process of using the system. Auditor should communicate with
the management and the patient to gather some additional information about the St Neville’s.
This will help the auditor to analyse and suggest a perfect solution for St Neville.
Answer to question 3
Acuity Vision is another business that is owned by (DHL) Dudley Health Limited.
This business includes a network of day surgery clinics in Australia. The sales team deliver
their own range of medical supplies that are sold from the direct marketing and by sales team
that was recently recruit by the business. The sales team has reported to the authority that

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they have received a very low salary along with the bonus and commission. The sales team
have also told that they have given a profit to the company a more than what they have
received in return (Pizzini, Lin & Ziegenfuss 2014). The senior auditor of the company have
collected some samples of customer payments that was received by the acuity and traced
them back to the general ledger and the customer balance of accounts. According to the given
question the risk that are associated in relation to the salary and wages is accuracy and cut
off. Accuracy of the salaries and wages means that transaction have been recorded properly
or not and the appropriate amount is being paid. Cut off of salaries means that the transaction
have been identified with the correct accounting period. The completeness of the transaction
has been performed or not have to verify. These identified risk that is very much related with
the given situation that the sales team are not getting the deserved salary from the company
(Aramide, & Bashir 2015). This can be implicated for controlling the environment, which the
management should look after the matter as the salaries of the sales team has reduced. The
management should examine the accounts of and the related sale invoices and the customer
payments. The management should try to find out and rectify the error (Kuenkaikaew &
Vasarhelyi 2013). The sales members off all the companies are important, they are the person
responsible for bringing customer and clients for the business. The management should try
communicate with them that the management is analysing the matter, and trying to solve it.
The management should try to hold the sales team and provide them the salary they deserve
from the company before they give the resignation. The management should notice on the
facts that the senior auditor of the company point out. Two out of fifteen creditors tested the
balance that was marginally overstated and the conclusion was that no material error was
identified. Three out of Twenty invoices tested had not been authorises and the discounts
applied to them was also incorrect. The conclusion provided was that the errors were
accepted but the claims were immaterial. To control the environment within the DHL should

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focus after every matter. The customer payment testing that was performed by the senior
auditor has identified many issues (Alzeban., & Sawan 2015). The first test was for the
fifteen chosen suppliers from the list of the trade creditors of the company at the end of the
current year. The invoices of the suppliers, balances of the amounts, notes of the supplier for
the receiving the goods by the company and this also has been checked and carried out that
the goods were received before the year end or not (Auasb.gov.au. 2019). The result that the
auditor get from the test is that out of fifteen two suppliers balance was marginally
overstated. This test help the company to get the report some of the balances have overstated
which should be done and company can charge for a refund and can rectify the error
(Knechel & Salterio 2016). The overstated balance generally means that the account balance
is reported to have a greater balance than the balance it should be there. The conclusion of the
relevant test states the test was accepted and no material errors was there. This shows that the
test was effective for the company as well as for the auditor. The second test is for twenty
suppliers (Newton et al. 2015). The invoices of the products, the applied discount and the
prices have been analysed by the purchase manager of the company (Griffiths 2016). Out of
twenty three of the suppliers invoice had been found that they had not get the discounts that
they were supposed to get (Coetzee, & Lubbe 2014). The errors have not been highlighted by
the department and no reason was specified for the error. The conclusion of the performed
test state that the test was accepted and errors in the discounts have been claimed. This
performed test help the company to get the information that was previously unknown by the
company. The company has claimed for the discount also from the result. This test has also
been prove effective for the company.
Answer to question 4
Test Type of test Key assertion Reasonableness of Additional

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conclusion audit procedure
1 Substantive
test
Valuation and
allocation
The conclusion of
this test is that, no
errors of material was
located in the
accounts. The
materiality of an
accounting year is
resolute on the
relationship of
income estimation for
the full year and the
effects on the trend of
earnings (Frazer
2016). The material
error was in respect
to the interim period
that is the reason why
no material error was
located at the year
end, as it was
disclosed in the
interim period of the
year. The Interim
period is a periods
The audit
procedure that
was performed
by the senior
auditor is
correct.
However the
auditor can
perform the
review the
financial
statements of
the company.
Then the
auditor may
gate some
more additional
information.
The auditor
should tally the
goods invoices
with the
financial
records.

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which is shorter than
the full fiscal year.
2 Test of control Completeness The conclusion of
this test is that the
errors in the discount
have been identified
and the discounts
have been claimed
were immaterial. The
immateriality of
accounting is the
application of the
conception in
materiality. This facts
and data’s does not
affect the decision of
different users such
as the financial
institutions, investors
of the company and
the owners. However
if the collection of
misstatements
recognized that cross
the overall materiality
The audit
procedure for
this test that
was performed
by the auditor
is correct.
However the
auditor may
selected some
more suppliers
to carry out the
test, then may
be some more
incorrect
discounts may
have been
identified by
the company.
The auditor
may also check
financial
records that
was being

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level, then the
financial records are
such as to be
misleading. This is
the reason why the
discounts claimed
were immaterial.
maintained by
the purchase
manager or the
accounts
department.
This may help
the company to
get some more
additional
information.
Answer to question 5
The full time working employee of the Pellegrino shores sometime have to work for
overtime and that is on weekends. The employees also have to serve night time. The reason
behind this is the shortage of staff. The staff that is needed to work at the Pellegrino shores
for nursing, cleaning and administrating is not enough. This is the reason why the full time
staffs have to overtime (Kinyua et al. 2015). This has been reported that the staffs are not
getting the payment on time, the payment is getting overdue. The key assertion related to this
is occurrence. This means that the salaries and the wages is recognized in the financial
statements and have incurred during the period in respect of the staff employed by the entity.
The salaries and the wages does not include the company cost of payroll (Pinto et al. 2014).
The detective internal controls are designed to find the errors after they have taken placed.
The primitive internal controls are done to keep the organisation error free and prevent
irregularities to take place inside the organisation. This is mainly done by the internal auditor
on a daily basis. According to the above identified risk the detective internal control that have

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to perform is to check and verify the customer payments and the balances including the
counting of cash, review of the accounts, performing internal audits. The preventive internal
control that the auditor should perform is that the accuracy of the staffs should be checked,
and should ensure monthly payment of salary and wages is being paid to the staff in time.

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