SGB & C .: Audit Sampling and Audit Procedures

SGB
CO . &
Account for Accuracy & Reliability
AUDIT
SAMPLING AND
AUDIT
PROCEDURES
Samsona, Beldia, Guiamalodin BOA/PRC Reg. No. 0001, May 14, 2021, valid
Tel: (639) 123 456
& Co. until January, 2024
Fax: (639 456 7878
SGB & Co. 1999 General Santos City SEC Accreditation No. OO14-FR-5 (Group A),
sg.com/ph
Account for Accuracy and Reliability Philippines November 6, 2021, valid until Novembe.5. 2024
Tel: (639) 123 456
Fax: (639 456 7878
sg.com/ph
PLANNED AUDIT PROCEDURES:

AUDIT OF CASH
Relevant Assertion/s: The primary relevant cash assertions are existence, accuracy, and cut-
off of transactions related to cash
Objectives:
● Determine the location of cash collection points in addition to the cashier's office,
such as emergency rooms, outpatient facilities, and special service departments.
● Determine if it is required for hospitals to maintain donor-restricted funds separately
from the cash of unrestricted funds.
● Review arrangements or agreements whereby the hospital collects cash for others.
Audit Procedures:
● Confirmation Cash Audit Checklist
● Bank Reconciliation Testing and;
● Cash Walkthrough
Specific Audit Procedures:

1. Confirm cash balances
2. Vouch reconciling items to the subsequent month’s bank statement
3. Ask if all bank accounts are included in the general ledger
4. Inspect final deposits and disbursements for proper cut-off
5. Examining underlying documentation, other legal requirements relating to restricted
cash.
6. Obtain and review organization policies and procedures related to cash deposits, co-
payments, and other patient shares of cost payments.
7. Interview Admissions and Registration staff to identify locations that collect and
process patient cash payments. Select at least two cash collection sites and conduct
on-site observation of the process to ensure that payment requirements are identified,
collected, and deposited in accordance with established policy and procedure.
AUDIT OF 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
Tel: (639) 123 456
Fax: (639 456 7878
sg.com/ph
● 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 also verifies 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 obtains estimates of fair value from security
dealers/brokers or other third-party sources. Lastly, the auditor determines whether
investments are properly classified and the disclosure guidelines in the accounting standards
are observed in the financial statements. In doing so, the auditor obtains an understanding of
management’s process for classifying securities.
AUDIT OF ACCOUNT RECEIVABLES

Assertions:
● Completeness and existence of information regarding accounts receivables in the
financial statements
● 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:
Tel: (639) 123 456
Fax: (639 456 7878
sg.com/ph
● 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

The auditor updates information on the hospital entity’s business risk and analyzes
potential motivation to or circumstances that misstate account receivables. The auditor
assures to 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, the auditor obtains a list of the accounts receivable from the subsidiary ledgers and
reconciles the total to the balance in the general ledger. As a standard audit procedure,
accounts receivable must be confirmed. Confirmation with the debtors is done to assure that
no lapping or any other form of manipulation has been resorted to by the entity’s employees.
The auditing firm mails directly the confirmation request, with an attached business reply
envelope, to the hospital entity’s patients/customers.
AUDIT OF 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

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 participates in the hospital entity’s physical inventory and reviews the
written instructions prepared by management for the employees who will make the counts.
The auditor also performs a test of prices applied to inventories to determine whether the
inventory costing procedure used by the hospital entity has been properly applied.
Tel: (639) 123 456
Fax: (639 456 7878
sg.com/ph
AUDIT OF 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

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 prepares 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 reti red assets and examines the auditor must
obtain retirement work orders prepared during the year.
AUDIT OF LIABILITIES & DEFERRED REVENUE
This group of accounts includes notes payable, accounts payable, long-term and
interfund debt, deferred revenue, and accruals for salaries, interest, vacations, and taxes.
Included also are liabilities to third-party payors for working capital advances and over-
reimbursement.
Assertions:
Low-risk assertion:
● completeness and categorization of short/long-term debt
High-risk assertions:
● the completeness, accuracy, and valuation of medical malpractice and other self-
insured liabilities, pension liabilities, or third-party settlement liabilities.
● proper classification of charity care versus bad debt expense
Objectives:
● All recorded liabilities on the statement of financial position are authentic debts due to
creditors of the entity.
Tel: (639) 123 456
Fax: (639 456 7878
sg.com/ph
● Completeness. All liabilities owed by the entity at the
reporting date are included on the statement of financial position.
● Valuation and Allocation. Liabilities are included on the statement of financial
position at the appropriate amounts.
● Rights and Obligations. Liabilities reported in the statement of financial position
represent obligations of the entity at the reporting date.
● Presentation and Disclosure. Liabilities and related accounts are properly classified,
described, and disclosed in the financial statements, including notes, in accordance
with the applicable PFRSs
● All recorded liabilities on the statement of financial position are authentic debts due to
creditors of the entity.
● All liabilities owed by the entity at the reporting date are included on the statement of
financial position.
● Liabilities reported in the statement of financial position represent obligations of the
entity at the reporting date.
● Liabilities and related accounts are properly classified, described, and disclosed in the
financial statements, including notes, in accordance with the applicable PFRSs
Audit Procedures for Liabilities
The auditor’s primary substantive procedures for liabilities typically include the
following:
1. Reconciling general ledger and subsidiary ledger;
2. Performing purchase and accounts payable cut-off;
3. Confirming the liabilities to debtors;
4. Inspecting supporting documents such as contracts, invoices, receiving reports, etc.
5. Searching for unrecorded liabilities;
6. Testing the accuracy of interest expense, interest payable, amortization of discount
and
7. premium;
8. Evaluating valuation of liabilities denominated in foreign currencies;
9. Reviewing compliance with terms of debt agreements;
10. Performing analytical review procedures to liabilities and related accounts; and
11. Evaluating proper financial statement presentation and adequacy of disclosure.
12. Audit Procedures for Liabilities:
The auditor’s primary substantive procedures for liabilities typically include the
following:
1. Reconciling general ledger and subsidiary ledger;
2. Performing purchase and accounts payable cut-off;
3. Confirming the liabilities to debtors;
4. Inspecting supporting documents such as contracts, invoices, receiving reports, etc.
5. Searching for unrecorded liabilities;
6. Testing the accuracy of interest expense, interest payable, amortization of discount
and premium;
7. Evaluating valuation of liabilities denominated in foreign currencies;
8. Reviewing compliance with terms of debt agreements;
9. Performing analytical review procedures to liabilities and related accounts; and
10. Evaluating proper financial statement presentation and adequacy of disclosure.
Tel: (639) 123 456
Fax: (639 456 7878
sg.com/ph
Specific Audit Procedures for Liabilities in Healthcare Industry:
● Determine that interfund accounts are in balance and that the transactions recorded
therein are authorized by the governing board either by specific approval of each
transaction or by blanket approval of each type of transaction.
● Review third-party payor advance payment balances.
● Review contract commitments with doctors, specialists, technicians, related parties,
and others who perform services by arrangement with the hospital.
● Substantiate deferred fees for educational programs and review existing subsidy or
grant agreements for educational purposes.
● Consider claims against the hospital for negligence and malpractice for possible
disclosure of contingent liabilities. Evidence of claims may usually be obtained from
claims agents, insurance companies, and attorneys. Obtaining written representation
of claims information should be considered by the auditor.
● Consider the effect on financial statements caused by timing differences between the
period in which items enter into the determination of reimbursement under third-party
reimbursement arrangements and the period in which such items enter into the
financial statements.
● Review policies requiring deposits from certain classes of patients, such as maternity
patients. From admitting and medical records, test application of these deposits;
confirmation on a test basis should be considered.
● Ascertain that pension liabilities and income tax are accounted for in accordance with
"Accounting for the Cost of Pension Plans" and, "Accounting for Income Taxes"
respectively.
AUDIT OF EXPENSES
Relevant Assertion/s: The primary relevant expense assertions are existence, completeness,
cut-off, classification, and occurrence.
Objectives:
● Ascertain efficiency in internal control
● Verify the reasonableness of expenses
● Ensure accuracy and proper documentation
Audit Procedures:
● Compare expenses to budget and examine any unexplained variances
● Design and perform fraud detection procedures
● Check the reasonability of expenses
● Expense walkthrough
Specific Audit Procedures:

1. Review comparative operational statistics and the relationship of such statistics to
changes in expenses.
2. Examine agreements between the hospital and hospital-based physicians and:
a. Test calculations based on agreements.
b. Obtain written representation from the administrator outlining the terms of any
verbal agreement and, where appropriate, confirm the details of agreements with
physicians.
Tel: (639) 123 456
Fax: (639 456 7878
sg.com/ph
c. Review the basis upon which the hospital has
segregated charges if it bills for hospital-based physicians.
3. Test the hospital's method of recording services (and supplies) furnished to
employees, such as the value of meals, housing, and laundry; test distribution of these
items to various departments and the treatment thereof for Social Security,
withholding tax, and insurance purposes.
4. Test procedures for recording charges for special nurses and the rebilling of such
charges to hospital patients.
5. For hospitals that record values for contributed services, the following should
ordinarily be considered:
a. Test the compensation value assigned to services contributed by non-paid
individuals based on time spent and job description by comparison with
compensation paid to workers in similar positions.
b. Determine that maintenance costs incurred on behalf of contributing personnel
have been considered in arriving at salary equivalents.
c. Examine time records supporting the salary-equivalents for voluntary services
and test computations.
6. Review fund-raising costs of endowment or building fund campaigns to determine
whether such expenses are properly chargeable thereto.
7. Review and analyze, where necessary, the following:
● Maintenance and repairs
● Operations of plant
● Professional fees (other than medical)
● Administration and general expense
● Laboratory supplies and expense
● X-ray supplies and expense
● Pharmacy supplies and expense
● Dietary supplies and expense
● Operating room supplies and expense
● Medical and surgical expense
● New or unusual expense accounts
● Miscellaneous expense

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PLANNED AUDIT PROCEDURES:

Specific Audit Procedures:

Specific Audit Procedure

AUDIT OF ACCOUNT RECEIVABLES

Specific Audit Procedure

Specific Audit Procedure

Specific Audit Procedure

AUDIT OF LIABILITIES & DEFERRED REVENUE

Specific Audit Procedures:

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