Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia.
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group (CMG), which owns 100 per cent of the following entities:
• Everfree Forest Hospital, a private hospital group
• Calendula Care Pty Ltd, a private nursing home
• Tempo Cancer Treatment Limited (TCTL), a private oncology clinic that specialises in the treatment of cancer.
Year-end for all CMG entities is 30 June.
You are performing the audit field work for the 2020 year for Everfree Forest Hospital. The field work must be completed in time for the audit report to be signed on 21 August 2020. You have been asked to circulate the debtors’ confirmations. Everfree Forest 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 $4 105 967 as at 30 June 2020 and was considered material.
The hospital’s payment terms are 14 days from the date of the invoice. Sixty per cent of the balance is represented by invoices outstanding from five different medical practitioners. The remaining 40 per cent is made up of numerous smaller amounts, most of which have been outstanding for more than 60 days. Any allowance for doubtful debts is taken directly against the trade receivables account and not shown separately.
(a) Explain how you would select the sample of debtors for confirmation.
(b) Only one in four of the debtors’ confirmations are returned. Explain the additional audit procedures you could carry out in order to provide sufficient appropriate audit evidence on the trade receivables balance for the existence assertion.
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