INVESTMENTS

Assertions:
● Existence, occurrence, and completeness of transactions related to
investments
● Valuation of investments
● Presentation and disclosure

Objectives:
● Determine the existence of investments and that the hospital entity
has rights to the investments
● Consider internal control over the investments held by the hospital
entity
● Determine that all investments of the entity are reported and
transactions affecting the investments are properly accounted for
● Establish the proper measurements of investments
● Establish accuracy of the amounts recognized relating to investments
● Determine that the presentation and disclosure of the investments are
adequate

Audit Procedure:
● Reading custody agreements
● Reviewing control and safeguarding procedures
● Confirming or examining securities
● Testing authorization and documentation supporting transactions
● Reviewing the basis of valuation and reporting income
● Verifying the investments like shares, debentures, bonds, and security
certificates

Specific Audit Procedure

The auditor confirms balances with the trustee or broker if the investments
are in the custody of an independent outside entity. Confirmations should be as of the same
date to obtain a reasonable assurance that there is no switching of securities to conceal a
shortage. The confirmation should include the description of each investment held for the
hospital entity, as well as the number of shares and the total amount of investment. If the
hospital entity keeps custody of the investments, the auditor should physically inspect and
count all securities on hand simultaneously. The auditor may also verify them with the
investment register.
The proper measurement of investments is validated by referring to
published price quotations for securities that are measured at fair value. If the securities do
not have published price quotations, the auditor shall consider obtaining estimates of fair
value from security dealers/brokers or other third party sources. Lastly, the auditor should
also determine whether investments are properly classified and the disclosure guidelines in
the accounting standards are observed in the financial statements. In doing so, the auditor
has to obtain an understanding of management’s process for classifying securities.
ACCOUNT RECEIVABLES
Assertions:
● Completeness and existence of information regarding accounts eceivables in
the financial statments
● Appropriate use of measurement bases and appropriate presentation and
disclosure of financial statement account receivable

Objectives:
● Consider internal control over receivables
● Determine the existence of receivables, that the hospital entity has
rights to these assets
● Establish the completeness of recorded receivables
● Determine that the receivables are measured at appropriate amounts
● Establish that the presentation and disclosure of receivables are
appropriate

Audit Procedure:
● Confirmation with the third-party payors
● Reviewing the adequacy of provision made for differences between
contractual interim billing rates and full-rate charges
● Reviewing the computation made to estimate the amount of
retroactive adjustments provided for in the accounts
● Reviewing related contracts to determine whether required
adjustments have been reflected in the accounts
● Reviewing of cost-reimbursement reports to determine that they were
prepared based on the principles of reimbursement of the third-party
payor

Specific Audit Procedure

The auditor has to update information on the hospital entity’s
business risk and analyze potential motivation to or circumstances
that misstate account receivables. The auditor must understand the
hospital entity’s operations and identify the proper recognition and
measurement of account receivables.
To establish the correctness of the balance of accounts
receivables in the general ledger, it is necessary for the auditor to
obtain a list of the accounts receivable from the subsidiary ledgers and
reconcile the total to the balance in the general ledger. As a standard
audit procedure, accounts receivable must be confirmed. Confirmation
with the debtors must be done to assure that no lapping or any other
form of manipulation has been resorted to by the entity’s employees.
The auditing firm must mail directly the confirmation request, with
attached business reply envelope, to the hospital entity’s
patients/customers.
 INVENTORIES
Assertions:
● Completeness and accuracy of inventory records

Objectives:
● Establish the completeness of the inventories
● Establish the clerical accuracy of records and supporting schedules
for inventories

Audit Procedure:
● Reviewing the independent organization’s procedures
● Observing physical counts
● Testing pricing

Specific Audit Procedure

Hospitals frequently employ independent organizations to inventory and price
drugs, medicines, and medical supplies. This is done because the quality of these items can
usually be determined more readily and accurately by these organizations than by the
hospital’s staff. Thus, the auditor must participate in the hospital entity’s physical inventory
and review the written instructions prepared by management for the employees who will
make the counts. The auditor must also perform a test of prices applied to inventories to
determine whether the inventory costing procedure used by the hospital entity has been
properly applied.

PROPERTY, PLANT, AND EQUIPMENT

Assertions:
● Existence of transactions that result in PPE account
● Correctness and accuracy of depreciation during the period
● VAluation of PPE

Objectives:
● Substantiate the existence of property, plant, and equipment
● Determine the correctness and accuracy of recorded depreciation
● Determine that the measurement of PPE is in accordance with
accounting standards

Audit Procedure:
● Evaluating depreciation policy
● Verify the changes in acquisition and retirements of PPE during the
current period

Specific Audit Procedure

 The auditor considers the internal control procedures adopted by the hospital
entity for fixed assets. The auditor examines the invoices, deeds, and title insurance
policies.
The auditor has to prepare a summary of the amounts of accumulated
depreciation for various groups of assets at the beginning of the year, the amounts
provided for depreciation during the year, the amounts removed because of asset
retirements, and the ending balances. Computations may then be reviewed for a
representative number of units and traced to both the expense accounts and
accumulated depreciation accounts. Then, the auditor makes inquiries of executives
and supervisors regarding retired assets and examines the auditor must obtain
retirement work orders prepared during the year.