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 a senior auditor working on the Everfree Forest Hospital engagement for the 2020 year and are currently in the planning stage of the audit. In discussions with management you discover that Everfree Forest has recently acquired two new, full body scanning machines. These machines use the latest technology and cost the company more than $10 million each. Although they are more than 50 per cent more likely to detect tumours and other abnormal internal growths, there are new academic studies suggesting there may be potential long-term side effects for patients scanned by these machines. However, because the machines are new, the evidence about long-term effects will not be known for many more years. Despite this, there has been some bad press for Everfree Forest highlighting the potential risks to patients.
Everfree Forest charges a premium price for using the scanning machine and there is extremely high demand. To manage the demand Everfree Forest requires that all patients pay for their scans in full at the time of booking, and the payments are immediately recognised as revenue by the hospital. Everfree Forest has taken bookings for four months in advance — although it is only April 2020, the hospital has bookings for July and August 2020.
The Australian Doctors and Hospital Association is currently reviewing the use of the scanning machines and is considering banning their use within Australia until the issue is resolved. A decision is expected on 1 August 2020, and management tell you that they believe there is an 80 per cent chance the scanners will be approved.
(a) Identify two key account balances likely to be affected by the information provided.
(b) For each account balance identified in (a) identify and explain the key assertions most at risk.
(c) For each assertion identified in (b) identify specific substantive tests of detail that would be responsive to the identified risk.
Step by Step Answer: