Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 2: You are an auditor on the Curasafe (CS) Limited engagement for the financial year ending 30 June 2017. CS is a large Australian

Question 2: You are an auditor on the Curasafe (CS) Limited engagement for the financial year ending 30 June 2017. CS is a large Australian private health insurer that also provides a range of complementary health management services and life, travel and pet insurance products. During the year, CS transitioned from a government business enterprise to a listed company by way of an initial public offering and listed on the ASX in November 2016. You are currently planning the CS audit and have noted the following information:

CS maintains an investment portfolio (consisting of mortgage asset-backed securities, hybrid investments and direct property) to meet insurance claims. During the year, it has recorded significant investment income from its portfolio of investment assets in the face of substantial economic and market volatility (interest rates, exchange rate and equity market volatility).

CS has experienced a spike in the number of improper (fraudulent or erroneous) health benefit claims. Management has launched a payment integrity program during the year to identify, prevent and recover improper claims.

You have noticed a significant increase in the number of health insurance policies being taken out around the June/July period. Health insurance premium revenue is recognised in the income statement over the life of the policy, starting from the commencement date of the current period of insurance cover, in accordance with the pattern of the incidence of risk expected to match the seasonality of claims over the term of the insurance cover. Premium revenue relating to future financial periods is classified as an unearned premium liability.

CS maintains a claim liability provision for the estimated cost of claims incurred but not settled at balance date. This is estimate based on the assumption that past claims settlements are an appropriate predictor of expected future claims settlement patterns.

One of the CS main subsidiaries, NHA, has engaged in acquiring and retaining policyholders in the new-to-industry segments of the market by focusing on affordability and flexibility of its policies. Due to the nature of the industry and value of individual policies, NHA, regularly monitors its premiums in arrears and prompt recovery action is undertaken when accounts in arrears are identified. Where accounts remain in arrears past a grace period of 70 days as specified in the standard contract extended to customers, NHA's practice is to terminate these policies. NHA engages debt collection agencies to obtain settlement of accounts in arrears where all other efforts prove futile.

Required: (a) Identify any four key accounts and related assertions at risk. Briefly justify your answer

(b) Perform one substantive test of detail for each of the identified assertions at risk.

(Maximum Word Limit 400)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Finance

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

12th edition

1259918947, 1260091908, 978-1259918940

More Books

Students also viewed these Accounting questions

Question

Are you at your best around 8 or 9 AM? Yes No

Answered: 1 week ago