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[書摘]英文審計案例(含評論)-8  

2010-05-02 13:24:22|  分类: 财会税:专业学习 |  标签: |举报 |字号 订阅

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Chapter 8: Audit Planning and Documentation

An Auditor, Who Does Not Understand A Client’s Business, Takes A Great Risk

Art Myers, of Myers & Co., CPAs, got an opportunity to break into the health care market when his physician, Dr. Gary Nettles, approached him about auditing Brookside Health Associates, a new health maintenance organization (HMO) that Gary and his associates had started. Brookside’s business was to provide medical services to companies for a monthly membership fee per employee.

When Brookside was formed, its owners hired Michael Sullivan to be the chief financial officer, even though he had no HMO experience. Just before the end of Brookside’s first fiscal year, Art met with Michael to plan Brookside’s initial audit. Neither Art nor Michael had any direct experience with an HMO (nor did anyone else in Myers & Co.), but they both read articles and other literature about the subject, including the AICPA Healthcare Audit Guide and the AICPA’s Audit Risk Alert for the healthcare industry.

A specific area of focus at the planning meeting was how to estimate the liability for medical services rendered but not yet billed to the HMO. This liability is called the “incurred but not recorded” (IBNR) and was new to both Art and Michael. Art agreed to investigate how to calculate this and get back to Michael.

Art’s approach was to contact a friend of his who audited an HMO in another state. His friend, who had only one HMO client, sent Art information that included a formula for estimating the IBNR liability. The formula was based on historical data and made sense to Art. He gave the formula to Michael, who applied it using the 12 months of data available from the initial year of operations. During the audit, Myers & Co. determined the formula was applied accurately.

Shortly after the completion of Brookside’s second year of operations, Michael Sullivan had some personal problems that required him to move to another city. Brookside replaced Michael with Bart Chemers, primarily because Bart had previously worked for an HMO.

When Bart saw how the IBNR was estimated, he questioned the formula used and made an in-depth investigation of the situation. He determined that the formula was significantly underestimating the IBNR liability, that the liability was materially understated in the previously audited financial statements, and that as a result, the rates negotiated in contracts with participants were much lower than they should have been. This finding led to a change in auditors and a sizeable monetary settlement by Myers & Co.

 

Lead-in:

Art Myers realized too late the importance of proper audit planning, given his experience in the audit of Brookside Health Associates. Good planning includes determining all of the background information necessary to design an effective audit approach. This chapter explains planning in detail, including documenting the auditor’s planning, accumulating evidence, and writing conclusion in the auditor’s working papers.[書摘]英文審計案例(含評論)-8 - maxpayne0594 - Call of Duty

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