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You are a senior auditor working on the audit of HealthyGlow for the year ended 30 June 2015. You are in the planning stage of the audit. It is April 2015 and you discover that HealthyGlow has recently acquired two new, full-body scanning machines, representing the very latest in technology, at a cost of more than $10 million each. The machine enables a full 360-degree scan of the body with the ability to identify tumours, cysts and other abnormal internal growths which currently have a 50% probability of being detected with other scanning devices on the market. Recent studies have shown there may be potential long-term side effects to patients who are scanned by the new technologically advanced machine. However, given the machine has only just arrived on the market, the results will not be known for many more years. This uncertainty and the potential high risk associated with the machine have caused bad press for both the scanning machine and HealthyGlow. HealthyGlow charges patients a premium price for the scanning machine due to its advanced technological abilities. As a result of high demand, the hospital has decided to reserve the use of the machine for pre-paid patients only. All scans must be paid for in full by patients at the time of booking. Payments are immediately recognised as revenue by the hospital. Demand for the scanners has been extremely high and HealthyGlow now has bookings for four months in advance. You note that even though it is only April 2015, the hospital has bookings for July and August 2015. The Medical Association of NSW is currently reviewing the use of the scanning machines and may ban their use within Australia until the issue is resolved. The decision is expected to be communicated on 1 August 2015. Management have indicated there is an 80% chance the scanners will be given the go ahead. Required: a) Assess the main business risks for HealthyGlow. (4 marks) b) Identify two key account balances likely to be affected by the above information. (2 marks) c) For each account balance

Respuesta :

Economic exposure is a source of concern over the firm's ability to make its intended profit. Business risk, therefore, is any risk that might lead to a possible future decrease in the company's profits.

Some of healthyGlow's business risks include -

  • It's a high-risk machine.
  • The influence on patients who have been tested on this system is questionable.
  • This led the company to a poor press that could cause the profit for HealthyGlow will fall.
  • Possible prohibition: The NSW Medical Association is now examining the usage of scanning equipment.
  • In Australia, it can probably limit their use.
  • Hence, if the order goes against them, the corporation faces a potential ban.
  • The advances received must be returned.

The next two accounts may be affected if the above-specified business risk becomes realistic.

  • Unearned A/c income- When test equipment is prohibited by the Australian Medical Association, HealthyGlow would be compelled to give up advances received.
  • This will adversely affect the Unearned Revenue Account.
  • Account for cash-The cash return already received likewise has a negative impact on the cash account.
  • Account for sales- It will damage the company's future revenues.
  • Sales A/c additionally will therefore be affected by Healthy Glow's company hazards.

For each account the following statements are at risk:

  • A/c Unarned Income-Assertion of Cutoff Whether the transaction was recorded during the corresponding period.
  • The A/c cash- Assertion of assessment is the amount appropriately measured and recorded.
  • Account of sales- Affirmation of occurrence - whether the documented sales took place.

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