Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During 2011, Fellowes and Associates gained a new client, Health Care Holdings Group (HCHG), which owns 100 percent of the following entities:
• Shady Oaks Centre, a private treatment centre
• Gardens Nursing Home Ltd., a private nursing home
• Total Laser Care Limited (TLCL), a private clinic that specializes in the laser treatment of skin defects.
Year end for all HCHG entities is June 30.
Shady Oaks Centre is a private treatment centre generating revenue from clients for stays in the facility and provision of nurses, psychologists, social workers, physiotherapists, and occupational therapists.
You are working on the 2011 engagement for Shady Oaks, and your audit manager has requested you use substantive analytical procedures to calculate Shady Oaks' estimated revenue for patients staying in the centre.
You are also completing the planning of the accounts payable and cash disbursement cycle. Accounting staff perform the following procedures:
• A pre-numbered cheque requisition is prepared for all payments.
• The details on the supplier's invoice are matched to the appropriate receiving report.
• The details on the supplier's invoice and receiving report are matched to an authorized purchase order.
• The cheque requisition is stapled to the authorized purchase order, receiving report, and supplier's invoice and forwarded to the appropriate senior staff member for review and authorization.
• The authorized cheque requisition, together with the supporting documents, is passed to accounts payable for payment.
Your control testing confirms that the above activities are performed effectively.
Required
Design the tests of details for purchases that you would use to supplement the analytical procedures. Relate each test to the relevant assertion for purchases.