a. Information gathering: Prepare a list of questions that you will inquire of management at the afternoon meeting regarding this new development.

b. Analysis and evaluation: Assuming this new information is material, discuss the steps the auditors will take. Would you recommend that management revise the financial statements? Why or why not?

c. Analysis and evaluation: What if management does not cooperate with your recommended course of action? What steps would you take?

Goodfellow & Perkins gained a new client, Brookwood Pines Hospital (BPH), a private, not-for-profit hospital. The fiscal year-end for Brookwood Pines is June 30. You are the audit partner on the BPH audit for the year ended June 30, 2023. The audit is finished, and the date on the unmodified audit report is August 21, 2023. BHG provided the audited financial statements and the auditor’s report to its banks on August 25, 2023. Today is August 28, 2023. As you are drinking your morning coffee at your desk, you get a phone call from BPH’s controller. He has some bad news: BPH just received notice from Infinity Health Insurance, the largest health insurance provider in Texas, that it will no longer list BPH as a preferred, in-network provider for its insurance members. Infinity Health Insurance is cancelling the contract with BPH because of the following reasons:

• Perception that BPH has poor internal controls because in September 2022, two ER doctors were caught upcoding, which is a type of fraud that causes insurance companies and patients to pay for services they did not receive.

• Closure of the hospital kitchen/cafeteria because it was badly damaged by fire.

• Increased complaints from Infinity Health Insurance members about outdated facilities at BPH. You tell the controller that you’d like to have a meeting with the executive management team that afternoon to further discuss the new development. You thank him for the call and hang up.

In preparation for your afternoon meeting, you review some evidence that was gathered in the last few days before the completion of fieldwork. The fire that occurred in the hospital kitchen a month ago was not adequately covered by insurance, but BPH has the funds to have the kitchen repaired. The original time frame to have the kitchen and cafeteria re-opened was 6 weeks. However, by the end of the audit, the controller stated it would be closer to three months before the kitchen would be fully repaired and open for operations.