Question:
All Audit Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2022 year, All Audit gained a new client, Shoalhaven Medical Group (SM), which owns 100 per cent of the following entities:
• Wollongong Private Hospital, a private hospital group
• Nowra Nursing Pty Ltd, a private nursing home
• Dapto Cancer Treatment Limited (DCT), a private oncology clinic that specialises in the treatment of cancer.
Year-end for all SM entities is 30 June.
You are performing the audit field work for the 2022 year for Wollongong Private Hospital. The field work must be completed in time for the audit report to be signed on 21 August 2022. You have been asked to circulate the debtors’ confirmations. Wollongong Private Hospital’s trade receivables arise from the use of hospital facilities (including the provision of nurses,
anaesthetists, operating theatres and supplies) by medical practitioners in private practice. The trade receivables balance was $5 000 000 as at 30 June 2022 and was considered material.
The hospital’s payment terms are 30 days from the date of the invoice. 65 per cent of the balance is represented by invoices outstanding from five different medical practitioners. The remaining 35 per cent is made up of numerous smaller amounts, most of which have been outstanding for more than 90 days. Any allowance for doubtful debts is taken directly against the trade receivables account and not shown separately.
REQUIRED
(a) Explain how you would select the sample of debtors for confirmation. Give reasons for your choice.
(b) Only one in four of the debtors’ confirmations are returned. Explain any three additional audit procedures you could carry out in order to provide sufficient appropriate audit evidence on the trade receivables balance for the existence assertion.
Assume that you are completing field work on payables for Wollongong Private Hospital. The payables relate to purchases of medical and catering supplies, employee related provisions, other accruals, and loans from banks and directors. Each account is individually material.
(c) Would you use payables’ confirmations? Explain.
(d) Provide a list of any three substantive procedures that would address the completeness and valuation assertions for any of these accounts.
Note:
Please write in your own words. Thanks.
