Auditing Report: Ramsay Health Care Limited
Executing planning of the audit of an entity’s financial statements is important for a number of reasons. First, it gives an opportunity to devote due attention to most important areas. Second, it helps to resolve possible problems in a timely manner. Third, it facilitates organizing the process optimally for an auditor and gives an understanding of required resources and team members to involve (ASA 300).
Financial report of the Ramsay Health Care Corporation has been delivered in compliance with the International Financial Reporting Standards and validated by Ernst & Young external auditing company. Several of the new accounting policies implemented concern employee benefits, fair value management and disclosure of interests in other entities. Part 2 in the Notes section contains several other new standards which were yet to be implemented in the company from years 2014 to 2018 (this last one of 2018 includes clarifications on how to classify financial instruments).
Materiality principle allows expensing negligible amounts of funds in a current year, which due to the matching principle should have been depreciated over a longer period of time. Defining materiality in our case is set at 0.02% of the operating revenue. That is, particular level of materiality will be $4909300000 * 0.02% = $981 860 (Ramsay 2014).
In considering audit risk, we have identified 5 key risk areas:Possible lack of internal control over financial reporting within the company. Undoubtedly developed and vivid corporate governance system of Ramsey Health Care may mean a disadvantage of deficiencies in understanding financial flows among the managers. Even though internal Audit Committee has been established at Ramsey, this issue still deserves attention.Reliability of accounting estimates, particularly, estimates of fair value. This can be an issue in all kinds of auditing processes (CAQ 2013), so we would advise to pay special attention, examining the financial trends in retrospective, possibly also making use of working papers of the previous auditors.
Standardized analytical procedures. Given that health care is a specific area of business operation, some of the casual auditing procedures should be shaped in accordance to its needs and uniqueness of operating activities. For example, licencing of hospitals takes place under legislation which is annually reviewed, which should be taken into account.
Risk of overlooking inaccurate or omitted disclosures. To eliminate this risk, auditing company should act in close cooperation with the corporation’s board and Audit Committee of Ramsay Health Care, in particular.
Revenue recognition. It has been one of the central newly-added issues in the Auditing Considerations for the 2014 Audit Cycle. To execute properly, auditors should design advanced tests of main financial controls so that both financial statement accuracy and accuracy of internal control are tackled. Also, it is vital to understand which kind of accounting estimates of the revenue a company designed, and details of the goods and services provided, as it also influences the revenue dynamics. In the result, auditor will be able to make a conclusion whether accounting routines utilized in the company are relevant to those used in …