(a) Identify two key account balances likely to be affected by The above information.
(b) For each account balance identified in (a) above, identify and explain the key assertions most at risk.
(c) For each assertion identified in (b) above, identify specific substantive tests of detail that would be responsive to the identified risk.

Required
Based on the background provided, describe all the key information required to estimate Shady Oaks’ revenue for patients staying in hospital.

(a) Identify two key account balances likely to be affected by the above information.
(b) For each account balance identified in (a) above, identify and explain the key assertions most at risk.
(c) For each assertion identified in (b) above, identify specific substantive tests of detail that would be responsive to the identified risk.

Chan & Partners Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2017 year, Chan & Partners gained a new client, Medical Services Holdings Group (MSHG), which owns 100 per cent of the following entities:

• Shady Oaks Hospital, a private hospital group

• Gardens Nursing Home Pty Ltd, a private nursing home

• Total Cancer Specialists Limited (TCSL), a private oncology clinic that specialises in the treatment of cancer.

Year-end for all MSHG entities is 30 June.

You are a senior auditor working on the Shady Oaks Hospital engagement for the 2017 year and are currently in the planning stage of the audit. In discussions with management you discover that Shady Oaks has recently acquired two new, full body scanning machines. These machines use the latest technology and cost the company more than $10 million each. Although they are more than 50 per cent more likely to detect tumours and other abnormal internal growths, there are new academic studies suggesting there may be potential long-term side effects for patients scanned by these machines. However, because the machines are new the evidence about long-term effects will not be known for many more years. Despite this, there has been some bad press for Shady Oaks highlighting the potential risks to patients. Shady Oaks charges a premium price for using the scanning machine and there is extremely high demand. To manage the demand Shady Oaks requires that all patients pay for their scans in full at the time of booking, and the payments are immediately recognised as revenue by the hospital. Shady Oaks has taken bookings for four months in advance — although it is only April 2017, the hospital has bookings for July and August 2017.

The Australian Doctors and Hospital Association is currently reviewing the use of the scanning machines and is considering banning their use within Australia until the issue is resolved. A decision is expected on 1 August 2017, and management tell you that they believe there is an 80 per cent chance the scanners will be approved.