Question $2$:

You are an auditor on the Eagle Limited engagement for the financial year ending $30$ June

$2024.$ Eagle is a large Australian private health insurer that also provides a range of

complementary health management services and life, travel and pet insurance products. During

the year, Eagle transitioned from a government business enterprise to a listed company by way

of an initial public offering and listed on the ASX in November $2023.$ You are currently

planning the Eagle audit and have noted the following information:

$$ Eagle maintains an investment portfolio $($consisting of mortgage asset$-$backed

securities$,$ hybrid investments and direct property$)$ to meet insurance claims. During

the year, it has recorded significant investment income from its portfolio of investment

assets in the face of substantial economic and market volatility $($interest rates,

exchange rate and equity market volatility$).$

$$ Eagle has experienced a spike in the number of improper $($fraudulent or erroneous$)$

health benefit claims. Management has launched a payment integrity program during

the year to identify, prevent and recover improper claims.

$$ You have noticed a significant increase in the number of health insurance policies

being taken out around the June$/$July period. Health insurance premium revenue is

recognised in the income statement over the life of the policy, starting from the

commencement date of the current period of insurance cover, in accordance with the

pattern of the incidence of risk expected to match the seasonality of claims over the

term of the insurance cover. Premium revenue relating to future financial periods is

classified as an unearned premium liability.

$$ Eagle maintains a claim liability provision for the estimated cost of claims incurred

but not settled at balance date. This is estimate based on the assumption that past

claims settlements are an appropriate predictor of expected future claims settlement

patterns.

$$ One of the Eagle main subsidiaries, NHA, has engaged in acquiring and retaining

policyholders in the new$-$to$-$industry segments of the market by focusing on

affordability and flexibility of its policies. Due to the nature of the industry and value

of individual policies, NHA, regularly monitors its premiums in arrears and prompt

recovery action is undertaken when accounts in arrears are identified. Where accounts

remain in arrears past a grace period of $70$ days as specified in the standard contract

extended to customers, NHA$$s practice is to terminate these policies. NHA engages

debt collection agencies to obtain settlement of accounts in arrears where all other

efforts prove futile.

Required:

$($a$)$ Identify the key accounts and related assertions at risk. Briefly justify your answer

$($b$)$ Perform one substantive test of detail for each of the identified assertions at risk. This is Applied Auditing and Risk Assessment Case Study Questions and maximum word limit is $500$ words.