CHAPTER 1 INTRODUCTION OF AUDITING 1) Meaning of Auditing:

The word audit is derived from the Latin word audire which means to hear. It is an important tool of management. It is concerned with making an analytical and critical analysis of the books of accounts, checking and verification of evidence in support of entries appearing in the books of accounts, and ascertaining the authenticity of the financial statements. It is also concerned with the examination of accounting data to determine the extent of an audit examination is too made on the basis of evidential document such as invoice, money receipts and other records by the authorized representative of the client. Auditor has used to send for the accountants and hear whatever they had to say in connection with the accounts. The auditor has to look into the facts behind figures and he must certify their accuracy. Auditing is to ascertain the balance sheet and profit and loss account that they show a true and fair view of the financial state of affairs of a concern. The Institute of Charted Accountants of India has issued a number of statements of standard auditing practices and accounting standards for guidance of Auditor of India.

2) Definition of Auditing:
According to DICKSEE, An audit may be said to be such an examination of the books, accounts and vouchers of a business, as will enable the auditor to satisfy himself that the balance sheet is properly drawn up, so as to exhibit a true and fair value of the state of the affairs of the

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business, whether the profit and loss account gives a true and fair value of the profit and loss for the financial year. According to the best of his information and explanations given to him and as shown by the books, and if not, in what respect he is not satisfy.

3) Origin of Auditing:
Auditing has its origin in the necessity in the development of some system toput a check on the persons whose duties were to record receipts and disbursements of money on the behalf of owners. In the ancient days auditing was confined to public accounts only. With the development of trade and commerce, the need for recording transactions was felt by businessman. This had necessitated the development of some system of check upon the persons who recorded such transactions on the behalf of businessman. The audit in its present shape is the result of largescale production inconse quence of Industrial Revolution during the 18th Century. With the development of banking facilities, communication and transport means, the concept of corporate management has taken birth. It necessitated the investors to know whether their investment is safe or not. Shareholders need an independent person having expert knowledge of accounts to report on the working of the company and truthfulness of the profit or loss and financial position disclosed by the management.

4) Relation of Accounting and Auditing:

Both accounting and auditing are closely related with each other as auditing reviews the financial statements which are nothing but a result of the overall accounting process. It naturally calls on the part of the auditor to have a

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thorough and sound knowledge of GAAP before he can review the financial statements. In fact, auditing as a discipline is also closely related with various other disciplines as there is lot of linkages in the work which is done by an auditor in his day-to-day activities. To begin with, it may be noted that the discipline of auditing itself is a logical construct and everything done in auditing must be bound by the rules of logic. The knowledge of language is also considered essential in the field of auditing as the auditor shall be required to communicate, both in writing as well as orally, in day-to-day work. For example, if the business has really earned a profit but because of wrong accounting, the annual accounts show a loss, the proprietor may take the decision to sell the business at a loss. Thus from the point of view of the management itself, authenticity of financial statements is essential. It is more essential for those who have invested their money in the business but cannot take part in its management, for example, shareholders in a company, such persons certainly need an assurance that the annual statements of accounts sent to them are fully reliable. It is auditing which ensures that the accounting statements are authentic. In todays economic environment, information and accountability have assumed a larger role than ever before. As a result, the independent audit of an entitys financial statements is a vital service to investors, creditors, and other participants in economic exchange.

5) Aspects to be covered in Audit:

The principal aspects to be covered in an audit concerning final statements of accounts are as follows:-

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 An examination of the system of accounting and integral controls to ascertain whether it is appropriate for the business and helps in properly recording all transactions. Reviewing the systems and procedures to find out whether they are adequate and comprehensive. Check the arithmetical accuracy of books of accounts by the verification of postings, balances etc. Examine the documentary evidence to establish the accuracy, authenticity and validity of transactions recorded. Verifying that a proper distinction is made between capital and revenue items. Verification of the title, existence and valuation of assets appearing in the balance sheet. Examination that the statutory requirements are complied with. Verifications of the liabilities stated in the balance sheet. Comparison of balance sheet and profit and loss account and other statements with underlying records in order to see that they are in accordance there with. Checking the results shown by the balance sheet and profit and loss account to see whether the results shown are true and fair. Reporting to the proper person as to what extent, accounts reveal a true and fair view of the state of affairs and of the profit and loss account of the organization.

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6) Functions of Auditing:
Important functions of auditing can be summed up as follows: Reviewing systems and procedures of business. Examining documentary evidence to establish the accuracy of recorded transactions. Reviewing the system of accounting and Internal Controls. To verify the valuation and existence of assets. To examine the mathematical accuracy of accounting statements. To see whether the statutory requirements have been complied with. Reporting as to what extent, accounts exhibit true and fairness. To make recommendations for improvement in Internal Control and Accounting System. To verify the distinction between capital and revenue items.

7) Objectives of Auditing:
A) Verification of accounts and financial statements: The main objective of an audit is to verify and establish that at a given date balance sheet presents true and fair view of financial position of the business and the profit and loss account gives the true and fair value of the profit or loss for the accounting period. The Auditor must: Verify the accuracy of posting, balancing etc. Confirm the validity of transactions with supporting documents. Confirm existence of assets and liabilities. Assess the system of internal control.

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 Ascertain whether distinction has been made between capital and revenue items. B) Fraud: Fraud is the word used to mean intentional error. This is done deliberately which implies that there is intent to deceive, to mislead. These are more serious than intentional errors. A great variety of intentional errors may be found. Intentional errors are the most difficult to detect and auditors generally devote greater attention to this type. Auditors while studying the possibility and nature of fraud must keep this always in mind and should not take any exception for those who held high offices. These things generally start in a non-consequential way after a subordinate staff member first borrow small amounts from the cash box to meet his temporary difficulty and gradually it becomes his habit to borrow in such a manner. Fraud also takes place in forms other than cash defalcations. C) Detection and Prevention of Errors: Accounting is the device for collecting and presenting useful information in financial terms about a business enterprise. It should as well be recognized that accounting data may contain errors for a variety of reasons. Even today human element is the most important element of recording and processing the accounting data. It is management that is responsible for prevention of errors and fraud.

8) Principles governing an Audit:

a) Principle of Independence:

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The audit work should be independent from accountancy and the auditor should examine the books of accounts indifferently and independently. He should be free from any such interests which may affect his integrity and objectivity. b) Principle of Objectivity: The audit work should be based on evidence and should be done impartially and in an unbiased way. c) Principle of Materiality: The principle of materiality is and has always been fundamental to the whole process of counting. An auditor has also to be quiet concerned regarding the concept of materiality. The auditor has to analyze and take decisions regarding various items whether they are material or not during the course of audit. In case the auditor finds that an item is quiet material in nature he would have to give careful consideration to its checking and would care for more evidence in support. d) Confidentiality: The auditor should maintain the confidentiality of the clients information. It is well said that an auditor keeps his ears and eyes open, but his mouth shut. He should disclose the information only when: He has obtained permission of his client. There is legal or professional duty to do so.

9) Work Performed by Others:

The auditor can delegate work to assistants or can use work performed by others, auditors or experts. But he will continue to be responsible for expressing an opinion of financial statements. The auditor should obtain reasonable

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assurance that work performed by other auditors or experts is adequate for his purpose. ICAI has issued AAS-7, AAS-9, AAS-10, AAS-12 andAAS-17 in regard to this issue. a) Documentation: Documentation is an important aspect of any audit. An auditor should maintain sufficient working papers for each audit assignment. Such documentation is very important in providing evidence that the audit was carried out in accordance with the basic principles. b) Planning: The Auditor should plan his work to enable him to conduct an effective audit in an efficient and timely manner. Plans should be based on knowledge of business client. Plans should be revised as necessary during the course of audit. AAS-8 issued by ICAI deals with aspects of planning. c) Audit Evidence: The information which may be oral or written, obtained for the purpose of the audit is known as audit evidence. Auditor should obtain sufficient and appropriate evidence to enable him to draw conclusions so as to make an opinion on financial statements. Audit evidence can be obtained with the help of following: Compliance Procedures Substantial Procedures Test of Details Analytical Procedures

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d) Accounting System and Internal Control: Management is responsible for maintaining an auditable adequate accounting system incorporating various internal controls to the extent appropriate to the size and nature of the business. The internal controls contribute to audit assurance that the accounting system is adequate and that all the accounting information has been duly recorded. AAS-6 has established standards for obtaining an understanding of accounting and internal control system. e) Audit Conclusion and Reporting: Auditor should review and assess the conclusions drawn from the audit evidenceo btained. He should assess whether the financial information complies with recognized accounting principles. He should also assess the disclosure requirements. The audit report should contain a clear and written expression of opinion on financial information. AAS-28 describes the elements and types of audit report.

10) Advantages and Limitations of Auditing:

I) Advantages: The fact that audit is compulsory by law, in certain cases by itself should show that there must be some positive utility in it. The chief utility of audit lies in reliable financial statements on the basis of which the state of affairs may be easy to understand. Apart from this obvious utility, there are other advantages of audit. Some or all of these are of considerable value even to those enterprises and organizations where audit is not compulsory, these advantages are given below:-

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A) It safeguards the financial interest of a person who are not associated with the management of the entity, whether they are partners or shareholders. B) It acts as a moral check on the employees from committing defalcations or embezzlement. C) Audited statements of account are helpful in setting liability for taxes, negotiating loans and for determining the purchase consideration for a business. D) These are also useful for setting trade disputes for higher wages or bonus as well as claims in respect of damage suffered by property, by fire or some other calamity. E) An audit can also help in the detection of wastages and losses to show the different ways by which these might be checked, especially those that occur due to the absence or inadequacy of internal checks or internal control measures. F) Audit ascertains whether the necessary books of account and allied records have been properly kept and helps the client in making good deficiencies or inadequacies in this respect. G) As an appraisal function, audit reviews the existence and operations of various controls in the organizations and reports weaknesses,

inadequacies, etc., in them. II) Limitations: At this stage, it must be clear that the objective of an audit of financial statements is to enable an auditor to express an opinion on such financial

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statements. In fact, it is the auditors opinion which helps determination of the true and fair view of the financial position and operating results of an enterprise. It is very significant to note that the AAS-2 makes it a subtle point that such an opinion expressed by the auditor is neither an assurance as to the future viability of the enterprise nor the efficiency or effectiveness with which management has conducted affairs of the enterprise. Further, the process of auditing is such that it suffers from certain inherent limitations i.e. the limitations which cannot be overcome irrespective of the nature and extent of audit procedures. It is very important to understand these inherent limitations of an audit since understanding of the same would only provide clarity as to the overall objectives of an audit. The inherent limitations are:First of all, auditors work involves exercise of judgment, for example, in deciding the extent of audit procedures and in assessing the reasonableness of the judgment and estimates made by the management in preparing the financial statements. Further much of the evidence available to the auditor can enable him to draw only reasonableconclusions there from. The audit evidence obtained by an auditor is generallypersuasive in nature rather than conclusive in nature. Because of these factors, the auditor can only express an opinion. Therefore, absolute certainty in auditing is rarely attainable. There is also likelihood that some material misstatements of the financial information resulting from fraud or error, if either exists, may not be detected.

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CHAPTER 2 INTRODUCTION OF HOSPITAL

A hospital is an institution for health care providing treatment by specialized staff and equipments. Modern-day hospitals are largely staffed by professional physicians, surgeons and nurses. Hospitals are set up to deal with many kinds of disease and injury, and typically has an emergency ward to deal with immediate threats to health and the capacity to dispatch emergency medical services. A hospital is typically the major health care facility in its region, with large numbers of beds for intensive care and long-term care; and specialized facilities for various surgeries. Some hospitals are affiliated with universities for medical research and the training of medical personnel and on the other hand Clinics generally provide only outpatient services. A hospital may be a single building or a campus which includes various wards classified as: a) A standard ward; b) A semi-private ward; or c) A private ward; As the case may be, and in accordance with the accommodation provided by the hospital and the requirements in respect thereof set out in the regulations. The rated bed capacity of any hospital established for wards of each of the classes should be appropriately examined and approved by the cost and financial management department.

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 INTRODUCTION OF HOLY SPIRIT HOSPITAL 1) Profile: Holy Spirit Hospital imbued with God's love, envision to contribute substantially towards curative, preventive and promotive health care through our ministry of healing. They consider it as their sacred duty to make health care available to all, irrespective of caste, colour, or creed at a reasonable cost. Inspired by the life giving Spirit of God, their mission at Holy Spirit Hospital is to respect life, through person oriented quality Health-care for ALL in loving service. The Missionary Sisters Servants of the Holy Spirit is a congregation founded by St. Arnold Janssen in 1889, with the assistance of Sisters Maria Helena Stollenwerk and Josepha Hendrina Stenmanns. From a humble origin in a remote village in Steyl, Holland the Order has now branched out to over 46 countries with around 3,700 Sisters of 40 nationalities forming a network of over 400 communities. The first group of 4 sisters arrived in India in 1933. Seeing the health condition of the people Sr. Carmelann Mckee promptly set up a dispensary, in Mumbai in 1964. Down the years, the mission continued to expand and the number of ministries grew. The Sisters gradually moved Eastwards to Orissa, then South and later on the North East, in all spreading over 15 states of India As Missionaries, there is a constant endeavour to build up basic human communities, work for social justice and peace, and defend the rights and dignity of women. The main apostolates of the Sisters in India are Education, Health care

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and Socio-pastoral care, especially for the marginalized, women and children. The Sisters are also involved in youth ministries, run hostels for students, family apostolates, homes for the mentally and physically challenged as well as homes for the aged. The motto in all these activities is Service in Love as Servants of the Holy Spirit of Divine Love. Taking into consideration the socio-economic and cultural characteristics of our clientele, 10% of their patients are slum dwellers who are given free treatment, 70% belong to the low-income group and are treated at a concessional rate, and only 20% are really paying patients. It is highly commendable that, in this city of Mumbai with over 12 million people, considered by many as the business capital of India, where quality healthcare is only available at a hefty price, this hospital offers state-of-the-art and up-to-date facilities at unbelievably subsidized rates. But what makes Holy Spirit Hospital truly unique is its attitude to the patient. It is deeply committed to its motto: Service in Love. They spread the healing love of God to all without any distinction of caste, creed, religion or economic status. Right from its inception in 1967, the Sisters have worked tirelessly with one goal in mind: to bring quality medical care within reach of the common people. They are indebted to their pioneers who through their hard work and enduring spirit have been instrumental in the development of the hospital. The hospital is grateful to its many donors from India and abroad for their generous

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contributions towards translating our dream into a reality. They have played a vital role in enabling the hospital to maintain its commitment to the common people. 2) History: Holy Spirit Hospital is a Charitable Trust Hospital located in Andheri (E), Mumbai, owned and managed by the Missionary Sisters Servants of the Holy Spirit. From a very humble beginning, starting as an Out-Patient Clinic in 1964, gradually developed into a 65-bed hospital in 1967. Today Holy Spirit Hospital stands proudly as a modern, 350-bed multi-specialty Hospital catering to the comprehensive health care of approximately 2 million people. 3) Vision: Holy Spirit Hospital imbued with God's love, envision to contribute substantially towards curative, preventive and promotive health care through their ministry of healing. They consider it as their sacred duty to make health care available to all, irrespective of caste, colour, or creed at a reasonable cost. 4) Mission: To respect life, through person oriented quality Health-care for ALL in loving service. Deeply committed to their Motto "Service in Love" 5) Certifications: CFBP Jamanalal Bajaj Uchit Vyavahar Pursakar for Fair Business Practices _ The council takes great pleasures in conferring this award on HOLY
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SPIRIT HOSPITAL MUMBAI for the year 2010 in recognition of their distinguished contribution to the promotion of the code of conduct of the council. It is a fact that human beings heals best in their natural environs. Bearing this in mind, Holy Spirit Hospital has engendered and maintained 1,26,744 sq.ft. sylvan habitat of healing. It is a private, Non-profit, Catholic Mission Hospital owned and managed by Missionary Sisters Servants of the Holy Spirit. From a very humble beginning, as an Out-Patient clinic in 1964, it took the shape of a 65 bed hospital in 1967. Today Holy Spirit Hospital stands proudly as a modern 350 bed multi-speciality hospital, which provides quality health care services for All irrespective of caste, creed or religion.

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CHAPTER 3 AUDIT OF HOSPITAL

I. Audit Scope: The scope of the audit of the financial statements must be sufficient to enable the auditor to report on the following: a) Fairness of presentation of the financial statements as to the financial position and the results of operations in accordance with generally accepted accounting principles. b) Compliance with applicable state and local governmental laws and regulations, as well as applicable legal opinions and interpretations (i.e., ordinances and Attorney General's opinions). c) The internal control of the Hospital. The audit should include all funds under the supervision and control of the Hospital as well as all component units required to be included as part of the reporting entity by the Governmental Accounting Standards Board. II. Laws Applicable to Audit of Hospitals: Laws play a very vital role for smooth and disciplinary functions followed by an enterprise. Also from an audit point of view proper application of Laws in a business/ professional environment sets a clean impression about clients work which brings consistency in the management as well. Besides, its very important to keep a track of new amendments for not getting into any discrepancy henceforth. However, further defaults (if any) would lead to harsh consequences.

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 Operational standards for hospitals are to hold a subsisting license as per law enacted for License Registration. Hospital rules and regulations. The operator of a hospital shall enact and put into force suitable general hospital by-laws and medical staff by-laws for example: i. ii. iii. iv. v. vi. vii. Indian Medicine Council Act 1956, Consumer Protection Act, Labour laws, Drugs and Magic Remedies Act 1953, License fees Act, Act in relation to Waste Management Supreme Court Judges (Salaries and Condition of services) Act 1958 etc Regulations and rules shall comply with any model by-laws, regulations and rules, and directions or guidelines, provided or approved as per prescribed amendments. The above Laws are enacted for: a) Prescribing the method and terms of admission to the hospital; b) Setting out the duties and authority of the officers and employees engaged in the operation or administration of the hospital; c) Prescribing the scales of salaries and wages payable to persons to whom clause (b) refers; and

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 Where the operator of a hospital is a corporation, the by-laws, regulations, or rules shall be made by by-law of the board of directors or other such managing board or committee thereof. III. Special Steps Involved in the Audit of a Hospital:

1) Vouch the Register of patients with copies of bills issued to them. Verify bills for a selected period with the patients attendance record to see that the bills have been correctly prepared. Also see that bills have been issued to all patients from whom an amount was recoverable according to the rules of the hospital. 2) Check cash collections as entered in the Cash Book with the receipts, counterfoils and other evidence for example, copies of patients bills, counterfoils of dividend and other interest warrants, copies of rent bills, etc. 3) See by reference to the property and Investment Register that all income that should have been received by way of rent on properties, dividends, and interest on securities settled on the hospital has been collected. 4) Ascertain that legacies and donations received for a specific purpose have been applied in the manner agreed upon. 5) Trace all collections of subscription and donations from the Cash Book to the respective registers. Reconcile the total subscription due (as shown by the Subscription Register and the amount collected and that still outstanding).

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6) Vouch all purchases and expenses and verify that the capital expenditure was incurred only with the prior sanction of the Trustees of the Managing Committee and that appointments and increments to staff have been duly authorized. 7) Verify that grants, if any, received from the government or local authority have been duly accounted for. Also, that refund in respect of taxes deducted at source has been claimed. 8) Compare the totals of various items of expenditure and income with the amount budgeted for them and report to the Trustees or the Managing Committee significant variations which have taken place. 9) Examine the internal check as regards the receipt and issue of stores: medicines, linen, apparatus, clothing, instruments, etc. so as to insure that purchases have been properly recorded in the Stock Register and that issues have been made only against proper authorisation. 10) See that depreciation has been written off against all the assets at the appropriate rates. IV. Internal Control: Internal control is defined as a process effected by an organization's structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives. It is a means by which an organization's resources are directed, monitored, and measured. It plays an important role in preventing and detecting fraud and protecting the organization's resources, both physical (e.g., machinery and

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property) and intangible (e.g., reputation or intellectual property such as trademarks). At the organizational level, internal control objectives relate to the reliability of financial reporting, timely feedback on the achievement of operational or strategic goals, and compliance with laws and regulations. At the specific transaction level, internal control refers to the actions taken to achieve a specific objective (e.g., how to ensure the organization's payments to third parties are for valid services rendered.) Internal control procedures reduce process variation, leading to more predictable outcomes. AAS-6 issued by the ICAI deals with the study and evaluation of Internal Control in connection with an Audit. It defines Internal Control as All the policies and procedures adopted by the management of a concern to ensure the orderly and efficient conduct of its business. The internal auditors and external auditors of the organization also measure the effectiveness of internal control through their efforts. They assess whether the controls are properly designed, implemented and working effectively, and make recommendations on how to improve internal control. They may also review Information technology controls, which relate to the IT systems of the organization. The system of internal control is the plan of the organization and all the methods and procedures adopted by the management of an enterprise to accomplish the following objectives:

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a) Execution of transactions in accordance with managements general or specific authorization; b) Prompt and correct recording of all transactions so as to enable preparation of financial information as per recognized accounting policies and practices and relevant legal requirements, if any, and to maintain accountability of assets; c) Safeguarding of assets from unauthorized access, use or disposition; d) Comparison of recorded assets with the existing assets at reasonable intervals so as to enable appropriate action in the case of any difference. The effectiveness of internal control procedures depends on the environment in which the internal control system operates. But a strong environment with effective budgetary and internal audit system may not necessarily ensure an effective internal control system. The internal control environment may be affected by the following factors: a) Organization structure, i.e., delegation of authority and assignment of functions so as to facilitate the working of the internal control system. b) Management supervision, i.e., a regular review of the adequacy of the internal control system with a view to ensuring effective operation of all significant controls. Internal audit system can also take care of such review. c) Personnel, i.e., competence and integrity of the persons who are responsible for establishment and operation of the internal control system.

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 Important Points to be considered by an Auditor with regard to Internal Control: The auditor should review the accounting system and the related internal controls to understand the flow of transactions and the specific control procedures to identify the controls which could be relied upon during the audit, keeping in view the size of the enterprise and the extent of controls. The review will be mainly by way of enquiries addressed to personnel at various levels in the enterprise, together with reference to documentation, e.g., procedure manuals, flow charts, job descriptions, etc. In a continuing engagement, knowledge about the control procedures should be regularly updated. A certain number of representative transactions should be traced through the accounting system so as to understand the system and the related internal controls. Information relating to the internal controls may be recorded by way of narrative descriptions, questionnaires and flow charts, as the auditor deems appropriate. Preliminary review should be based on the assumption that the controls operate generally as described, and they function effectively throughout the period of intended reliance. The purpose of the review is only to identify the specific controls which can continue to be relied upon. The auditor may decide not to rely on any particular controls because of their defective design or because the effort required to test whether they are being complied with, will not be

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commensurate with the reduction in effort to be achieved by placing reliance on them. Internal Control in a Hospital:

The two panels on the left represent the hospital administration. The righthand panel represents the medical staff. For clarity, only a few of the many departmental entries have been labeled in each panel. Although the administration's exact departmental grouping varies considerably with the size and type of hospital, it basically consists of patient care services (e.g., pharmacy), depicted in the middle panel, and support services (e.g.,

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accounting), depicted in the left-hand panel. As indicated in the right-hand panel, the medical staff is usually divided into clinical services according to the specialty branches of its member physicians (e.g. cardiology). V. Internal Check / Audit: Internal auditing is a profession and activity involved in advising organizations regarding how to better achieve their objectives. Internal auditing involves the utilization of a systematic methodology for analyzing business processes or organizational problems and recommending solutions. Professionals called internal auditors are employed by organizations to perform the internal auditing activity. The scope of internal auditing within an organization is broad and may involve internal control topics such as the efficacy of operations, the reliability of financial reporting, deterring and investigating fraud, safeguarding assets, and compliance with laws and regulations. Internal auditing frequently involves measuring compliance with the entity's policies and procedures. A hospital's internal audits increasingly should focus on the clinical aspects of cost and payment. This scrutiny can provide a better look at the efficiency of clinical operations control and bottom line effect. Four steps are involved in planning an operations audit: I) First, background information (including regulations and standards concerning pacemakers) should be obtained. Flow charts and

questionnaires can help explain various administrative stages for acquisition handling and charging.
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II) Second, a set of preliminary objectives should define the scope of an audit. An audit should review the financial and operational issues involved in purchasing concepts, control pricing, charging, and credit return. A hospital audit should include justification for extended stays, surgical management care, and protocol. III) Third, an auditor should be familiar with an institution's goals, objectives, organization, staffing, information systems, performance standards, and written procedures. A walk-through with the manager of each review area is a good idea. IV) The final step is to devise a step-by-step audit program. Performing an Audit, For an analysis of charges and payments, a personal computer can be used to establish databases from the following source documents: Accounts payable files by manufacturer; Medical records and billing files by patient; and Operational and surgical logs for implanting and explanting. The analysis should include sufficient data to draw reasonable conclusions. A hospital's medicine charges, found in its billing files, can be compared to its medicine purchases, listed by manufacturer or serial number. Bills should be separated into charges versus payments received and recorded as either profit or loss per patient.
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Bill review computation or electronic method of transmitting pacemaker data to third-party payers for accuracy and timeliness of payments also should be analyzed. The next step involves determining whether surgical implant charges are based on time, procedure, or both. Charges should be consistent from patient to patient. Price changes should be verified, and unadjusted profit margin on price changes should be identified. The unit price the hospital is paying should be examined against the manufacturer's list price, with particular attention given to discounts and bidding agreements. To avoid Mediclaim fraud and abuse issues, manufacturers can be asked whether physicians are receiving any form of commission or rebate for using a particular brand of medicine. While a manufacturer is unlikely to reveal a commission arrangement, inquiring about it can help clear a hospital of liability in the event of fraud or abuse charges. VI. Financial Audit: A financial audit, or more accurately, an audit of financial statements, is the examination by an independent third party of the financial statements of a company or any other legal entity (including governments), resulting in the

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publication of an independent opinion on whether or not those financial statements are relevant, accurate, complete, and fairly presented. Financial audits are typically performed by firms of practicing accountants due to the specialist financial reporting knowledge they require. The financial audit is one of many assurance or attestation functions provided by accounting and auditing firms, whereby the firm provides an independent opinion on published information. Many organizations separately employ or hire internal auditors, who do not attest to financial reports but focus mainly on the internal controls of the organization. External auditors may choose to place limited reliance on the work of internal auditors. Financial audits exist to add credibility to the implied assertion by an organization's management that its financial statements fairly represent the organization's position and performance to the firm's stakeholders (interested parties). The principal stakeholders of a company are typically its shareholders, but other parties such as tax authorities, banks, regulators, suppliers, customers and employees may also have an interest in ensuring that the financial statements are accurate. The audit is designed to reduce the possibility of a material misstatement. A misstatement is defined as false or missing information, whether caused by fraud (including deliberate misstatement) or error. Material is very broadly

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defined as being large enough or important enough to cause stakeholders to alter their decisions. The exact 'audit opinion' will vary between countries, firms and audited organizations. Stages of a Financial Audit: A financial audit is performed before the release of the financial statements (typically on an annual basis), and will overlap the 'year-end' (the date which the financial statements relate to). The following are the stages of a typical financial audit: 1) Planning and risk assessment: Timing: before year-end Purpose: To understand the business of the company and the environment in which it operates. To determine the major audit risks (i.e. the chance that the auditor will issue the wrong opinion). For example, if sales representatives stand to gain bonuses based on their sales, and they account for the sales they generate, they have both the incentive and the ability to overstate their sales figures, thus leading to overstated revenue. In response, the auditor would typically plan to increase the rigour of their procedures for checking the sales figures.
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2) Internal controls testing: Timing: before and/or after year-end Purpose: To assess the internal control procedures (e.g. by checking computer security, account reconciliations, segregation of duties). If internal controls are assessed as strong, this will reduce (but not entirely eliminate) the amount of 'substantive' work the auditor needs to do (see below). 3) Substantive procedures: Timing: after year-end (see note regarding hard/fast close below) Purpose: To collect audit evidence that the management assertions (actual figures and disclosures) made in the Financial Statements are reliable and in accordance with required standards and legislation. Methods: where internal controls are strong, auditors typically rely more on Substantive Analytical Procedures (the comparison of sets of financial information, and financial with non-financial information, to see if the numbers 'make sense' and that unexpected movements can be explained) where internal controls are weak, auditors typically rely more on Substantive Tests of Detail (selecting a sample of items from the major

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account balances, and finding hard evidence (e.g. invoices, bank statements) for those items) 4) Finalization: Timing: at the end of the audit Purpose: To compile a report to management regarding any important matters that came to the auditor's attention during performance of the audit, To evaluate and review the audit evidence obtained, ensuring sufficient appropriate evidence was obtained for every material assertion and To consider the type of audit opinion that should be reported based on the audit evidence obtained. BIBLOGRAPHY http://www.holyspirithospital.org

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