Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. In 2011, Fellowes and Associates gained a new client, Health Care Holdings Group (HCHG), which owns 100 percent of the following entities:
• Shady Oaks Centre, a private treatment centre
• Gardens Nursing Home Ltd., a private nursing home
• Total Laser Care Limited (TLCL), a private clinic that specializes in the laser treatment of skin defects.
Year end for all HCHG entities is June 30.
You are performing the audit field work for Shady Oaks Centre for 2011. The field work must be completed in time for the audit report to be signed on August 21, 2011. You have been asked to send accounts receivable confirmations. Shady Oaks Centre's accounts receivable arise from the use of centre facilities (including the provision of physiotherapists, occupational therapists, and massage therapists). The accounts receivables balance was $3,974,569 as at June 30, 2011 and was considered material.
The centre's payment terms are 14 days from the date of the invoice. Sixty percent of the balance is represented by invoices outstanding from five different practitioners. The remaining 40 percent is made up of numerous smaller amounts, most of which have been outstanding for more than 60 days. Any allowance for doubtful accounts is taken directly against the accounts receivable account and not shown separately.
Assume that you are completing field work on payables for Shady Oaks. The payables relate to purchases of medical and therapy supplies, employee-related provisions, other accruals, and loans from banks and directors. Each account is individually material.
Required
(a) Would you use payables' confirmations? Explain.
(b) Provide a list of substantive procedures that would address the completeness and valuation assertions for each account.