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CA Intermediate · Auditing and Ethics · Special Features of Audit of Different Type of Entities

CA Pooja is auditing Kaveri Hospital Society, a not-for-profit entity that collects patient fees in cash at multiple counters. Management has no system for numbered receipts at the pharmacy counter. Which audit response is most appropriate to address the completeness of revenue?

The auditor should evaluate the control weakness, perform substantive procedures like comparing pharmacy sales with inventory consumption and purchases, and communicate the deficiency to those charged with governance. Declarations from staff or patient confirmations do not provide adequate evidence of completeness of cash revenue.

  1. AEvaluate the weakness in internal control, perform procedures such as comparing pharmacy sales with inventory consumption and purchase records, and communicate the deficiency to those charged with governanceCorrect
  2. BConclude that revenue is complete because cash collections are small
  3. CConfirm revenue by sending balance confirmations to all patients
  4. DRely on the accounts staff's declaration that all cash has been recorded

Explanation

Absence of numbered receipts is an internal control deficiency that raises the risk of incomplete cash revenue. The auditor should perform substantive analytical and reconciliation procedures, such as relating sales to inventory movements, and report the deficiency to those charged with governance. Patient confirmations are impractical and declarations alone are insufficient.

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