Question

Goodfellow & Perkins LLP is a successful mid-tier accounting firm with a large range of clients across Texas. During 2022, Goodfellow & Perkins gained a new client, Brookwood Pines Hospital (BPH), a private, not-for-profit hospital. The fiscal year-end for BPH is June 30. Goodfellow & Perkins is performing the audit for the fiscal year-end June 30, 2023.

BPH provides medically necessary care to patients, regardless of their ability to pay. Both uninsured and underinsured patients are offered discounts of up to 100% of charges based on their income as a percentage of the federal poverty level guidelines. BPH does not pursue collection of these accounts; therefore, they are not reported in patient service revenue and accounts receivable. The cost of providing the charity care is included in operating expenses.

BPH’s investments consist of mutual funds, common equities, corporate and U.S. government debt issues, state and municipal government debt issues, and trusts. A majority of the investments are the result of charitable contributions to the hospital by generous donors. Earnings from the investments are used to cover the costs of the charity care. BPH is also eligible for certain government grants to help cover the costs of the charity care.

The breakdown by payor of BPH’s accounts receivable balance approximates the following:

Medicare		16%
Medicaid		12%
Blue Cross		19%
Other insurance providers		33%
Patients		20%

The historical estimated allowance for uncollectible accounts is approximately 23%.
The following table lists selected asset accounts for BPH as of June 30, 2023 and 2022 (amounts in thousands).

Account		June 30, 2023		June 30, 2022
Cash and cash equivalents		$ 43,077		$ 36,361
Short-term investments		22,725		49,338
Patient accounts receivable, net		119,380		99,962
Inventory		10,740		10,056
Long-term investments		915,088		807,321
Property and equipment:
Land		57,839		58,140
Buildings		577,546		556,590
Equipment and furniture		194,481		169,603
Construction in progress		89,890		58,290
		919,756		842,623
Accumulated depreciation		343,324		303,642
Property and equipment, net		576,432		538,981
Total current assets		233,286		225,962
Total assets		1,787,720		1,618,698

Select three asset accounts that you consider significant accounts for BPH and explain why they are significant. For each significant account that you identify, determine the two most relevant assertions for that account and select one audit procedure that would provide sufficient appropriate audit evidence related to each of the relevant assertions.

Enter your answer in accordance to the question statement

Answer 1

ANSWER:-

The following table lists the most significant asset accounts for BPH, the two or three most relevant assertions for each account, and two or more audit procedures that would provide sufficient appropriate audit evidence related to the assertions.

Significant Account	Two relevant assertions	Two audit procedures
Patient accounts receivable, net– This account is 51% of total current assets (7% of total assets), therefore it is significant based on its magnitude. It is also significant because of the complexity and risk involved with collecting from Medicare, Medicaid, insurance companies, and individuals.	Existence and valuation	Existence: Confirmation of receivables with Blue Cross and a sample of other insurance providers. Sending confirmations to individual patients would not be effective because most patients would probably not respond. Confirming with Medicare and Medicaid would also probably not be effective because of non-response. In addition to confirmation, auditors inspect documentation (vouch back to supporting documents) and correspondence with insurance companies that supports the existence of the receivable. Valuation: Inquire of management regarding the process of determining the estimate for uncollectible accounts. Recalculate the estimate. Inspect documents and correspondence with insurance companies as needed.
Long-term investments – This account is 51% of total assets, therefore it is significant based solely on its magnitude.	Existence and valuation	Existence: For investments that are held with a third party investment firm, send confirmations to verify existence and valuation. Valuation: For investments required to be measured at fair value, inquire of management about the process for determining fair value. Fair value can also be verified with a confirmation with the third party investment firm. For investments reported at cost, inspect supporting documentation and recalculate if necessary.
Buildings – This account is 32% of total assets, therefore it is significant because of its magnitude.	Existence and valuation	Existence: Inspect the physical buildings for existence and inspect supporting documentation, especially for any new buildings acquired. Valuation: Inquire of management regarding the process for determining impairment. Recalculate if necessary.
Furniture and equipment – This account is 11% of total assets. It is significant because equipment and furniture is critical to the primary operations of the hospital. Hospitals cannot function without medical equipment (i.e. x-ray machines) and furniture (i.e. hospital beds, chairs for waiting rooms).	Existence, rights, valuation	Existence: Inspect a sample of the physical equipment for existence and inspect supporting documentation, especially for any new equipment acquired. Rights: Inspect supporting documentation to verify that equipment is owned rather than rented for a term of less than one year. Valuation: Inquire of management regarding identification of obsolete or defective equipment and related impairments. Recalculate if necessary. Inspect actual equipment for indications of possible impairment.