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Audit Program for a public company's accounts receivable

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Access any company that you would like to research via the Internet and look up the company's latest financial statements. Please choose a different company than you have access thus far.

Select either Accounts Receivable or Inventory balances. Indicate the amount of the balance for the latest year end and the previous year end.

Situation:

1. This company is a first year client.
2. The partner of your firm has indicated that he would like to know how you would audit accounts receivable or inventory.
3. Prepare a short memo on you audit approach. That is, write at least fives steps that you would use to audit this balance. Specifically indicate the type of sampling method that you would use and why.

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Solution Summary

The solution includes selected information from the published financial statements for a publicly traded company followed by a discussion of audit procedures based on the information. Next, an audit program is proposed to test accounts receivable. The audit program is customized to account for the high level of concentration of risk as noted in the financial statements.

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ALLIANCE IMAGING, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

ASSETS

Current assets:
Cash and cash equivalents $ 13,421 $ 16,440
Accounts receivable, net of allowance for doubtful accounts of
$5,858 in 2005 and $6,629 in 2006 48,236 51,569
Deferred income taxes 6,186 20,199
Prepaid expenses and other current assets 3,686 4,211
Other receivables 8,983 8,096
Total current assets 80,512 100,515

(from the audited financial statements- see cite below)

Accounts Receivable
We provide shared and single-user diagnostic imaging equipment and technical support services to the healthcare industry and directly to patients on an outpatient basis. Substantially all of our accounts receivable are due from hospitals, other healthcare providers and health insurance providers located throughout the United States. Services are generally provided pursuant to long-term contracts with hospitals and other healthcare providers or directly to patients, and generally collateral is not required. Receivables ...

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