Lakeside Hospital Case

In: Business and Management

Submitted By nicomazza
Words 1241
Pages 5
Lakeside Hospital
A hospital just can’t afford to operate a department at 50 percent capacity. If we average 20 dialysis pa- tients, it costs us $425 per treatment, and we’re only paid $250. If a department can’t cover its costs, includ- ing a fair share of overhead, it isn’t self-sufficient and I don’t think we should carry it.

Peter Lawrence, M.D., Director of Specialty Services at Lakeside Hospital, was addressing James Newell, M.D., Chief Nephrologist of Lakeside’s Renal Division, concerning a change in Medicare’s payment policies for hemodialysis treatments. Recently, Medicare had begun paying independent dialysis clinics for standard dialysis treatments, and the change in policy had caused patient volume in Lakeside’s dialysis unit to decrease to about 50 percent of capacity, producing a corresponding increase in per-treatment costs. By February of the current fiscal year, Dr. Lawrence and Lakeside’s Medical Director were considering closing the hospital’s dialysis unit. Dr. Newell, who had been Chief Nephrologist since he’d helped establish the unit, was op- posed to closing it. Although he was impressed by the quality of care that independent centers of- fered, he was convinced that Lakeside’s unit was necessary for providing back-up and emergency services for the outpatient centers, as well as for treatment for some of the hospital’s seriously ill inpatients. Furthermore, although the unit could not achieve the low costs of the independent cen- ters, he disagreed with Dr. Lawrence’s cost figure of $425 per treatment. He resolved to prepare his own cost analysis for their next meeting. BACKGROUND Approximately twenty years ago, at Dr. Newell’s initiative, Lakeside had opened the dialysis unit, largely in response to the growing number of patients with chronic kidney disease. The hospi- tal’s renal division had long provided acute renal failure care and…...

Similar Documents

Lakeside Company: Case 1

...Lakeside Auditing Case Study Case 1 Prepared by: January 27, 2011 1: An independent annual audit can provide credibility to information, and this could be very helpful for decision making. In this specific case, the owner of the Lakeside requires an independent CPA firm to perform an annual audit because the owner wants to show the public a “good-look” of its financial statements; since he would like to receive more capital by making his company public. In addition, good-looking financial statements of the company could provide good credit from the bank. To the lakeside company, the owner would like to provide audited financial statement to the bank to obtain the loan and receive the best possible interest rate. On the other hand, a decision by a bank loan officer about whether to make a loan to Lakeside Company and what rate of interest adequately compensates the bank for the level of risk assumed depends on an independent auditing report about lakeside’s financial reports. An auditing report about the company is reliable for the bank; it can significantly reduce the level of information risk. If the loan officer has assurance from the auditors that the company’s financial statements are prepared in accordance with GAAP, he or she will have more confidence in his or her assessment of business risk. By reducing information risk, the audit reduces the overall risk to the bank. 2: According to GAAS, the auditor must obtain a sufficient understanding of the entity......

Words: 1450 - Pages: 6

Assignment: Case 3-1 Lakeside Hospital

...Name: Shawnyknoxville Class: HADM 542 W13 MANAGERIAL ACCT/HTH CARE ORG Date: 1/29/2013 Assignment: Case 3-1 Lakeside Hospital For Case 3-1: answer questions 1 - 5. 1. Breakeven Volume Analysis Varible costs Medical Supplies: $493,806 Purchased Laboratory Services: $24,476 Water Usage: $20,896 Total Variable Costs: $539,178 Number of treatments: 5,736 Total Variable Cost / Number of treatments $539,178 / 5,736 = 94 Px = a + bx $250x = $510,870 + 94x $156x = $510,870 ($156x = $510,870)/$156 = 3274.81 3274.81 treatments per year 7 nurses -1 $35,000/7 = $5,000 bi-monthly / 2 = $2,500 monthly ($2,500 monthly)12 = $30,000 per year 7 techs -1 $30,680/7 = $4382.86 bi-monthly(2 Employees)/ 2 = $4382.86 monthly ($4382.86 monthly)12 = $52,594.29 per year $30,000 per year + $52,594.29 per year = $82,594.29 per year total payroll last year = $436,800 $436,800 - $82,594.29 = $354,205,71 projected payroll with 3 less employees $354,205.71/$436,800 = 81.1% of previous years payroll expenses Assumptions: Medical Supplies: $493,806 Purchased Laboratory Services: $24,476 Water Usage: $20,896 Are variable expensed and Depreciation is a fixed expense 2. Fair Share of Overhead: @ 50% Capasity 120 Treatments per week / 2 = 60 Treatments per week (60 Treatments per week)(52 weeks in a year) = 3120 Treatments per year @ 50% Capacity Treatments per year @ 50% Capacity / Number of treatments last year: 5,736 = 3,120/5,736 =......

Words: 494 - Pages: 2

Lakeside Company Case 6

...The Likeside Company: Auditing Cases AUDITING PROCEDURES AND AUDITING DOCUMENTATION: TESTING THE INVENTORY PURCHASING SYSTEM Art Heyman is employed as a staff auditor with the independent accounting firm of Abernethy and Chapman. For the first two weeks of December 2012, Heyman is asined to the Lakeside Company examination. During this period, he is to perform a number of testing procedures designed by Carole Mitchell, in-charge auditor on the engagement. Heyman recalled that several parts of the initial risk brainstorming involved inventory and merchandise purchases. At the present time, Heyman is beginning to analyze the transactions that occur in the client's merchandise procurement system. Within this testing, he is especially interested in determining the extent to which employees comply with control procedures while carrying out various required activities. This evaluation will influence the assessment of control risk and therefore, the nature, timing, and extent of substantive tests to be performed by the firm in this area. Lakeside leases a perpetual inventory record accounting system from DATA Processing System of Richmond, an outside service organization. The initial entries are made by the Controller's division of Lakeside, and on a weekly basis the transactions are uploaded through DATA Processing Systems' website. Reports are then generated, and one copy of the current inventory balances goes to Edward Thomas, who is responsible for acquiring merchandise,......

Words: 2840 - Pages: 12

Lakeside 12e Case 6

...Case 6 - Exercise 2 Lakeside Company Inventory Purchases and Cash Disbursements Transactions December 31, 2006 Audit document No. N-3 Prepared by: AM 5/23/05 Reviewed by: Reviewed by: Date Vendor Purchase Requisition Number Receiving Report Number Invoice Number Check Number Audit Procedures 8/20/06 Cypress Products 6702 3918 711 3091         8/21/06 Cypress Products 6703 3919 802 3121    F     8/24/06 Cypress Products 6705 3920 991 3164    F     8/27/06 Cypress Products 6704 3921 1261 3203   E    H L 8/28/06 Cypress Products 6706 3922 1313 3251   D      9/2/06 Cypress Products 6707 3923 1406 3310      G   9/3/06 Cypress Products 6708 3924 1510 3345       I  9/7/06 Cypress Products 6710 3925 1616 3397    F     B Cypress Products 6709 3926 1691 3425 B        9/14/06 Cypress Products 6711 3927 1812 3451   C  C    9/16/06 Cypress Products 6712 3928 2072 3471    F   J  9/16/06 Cypress Products 6713 3929 2149 3510   E      Audit Objectives: To verify that all received merchandise was properly ordered and recorded and is for legitimate business purpose. To verify that expenses and assets are properly valued and classified. To verify that merchandise orders are handled properly and cash disbursements occur accurately for these orders. Scope: a) Population- All received merchandise. b) Sample- Judgmental. Selected 12 receipts of merchandise......

Words: 906 - Pages: 4

Lakeside Company Intro Case

...merging personalities which can often lead to conflict; however, merging the different levels of expertise could be beneficial to a firm. Ultimately, I believe that merging firms will create growth within the auditing profession. The case stated that, during busy periods, individuals may move from one area of the firm to another, for example from consulting services to assurance services. Are there any potential problems with these movements within the firm? While it’s important for staff to be able to multi-task and cross-train in other areas, moving individual staff around during an audit could create an impression that there is a lack of control. When auditors are shifted around, clients could lose confidence in the auditor’s competence. “Auditing should be done by a competent, independent person.” (Arens, 2014, pg.4) Quality Control Standards I was asked to review the quality control standards of Abernethy and Chapman as to whether or not the firm met the standards in accordance with the AICPA’s Standard of Quality Control Standards No. 7, A Firm’s System of Quality Control. Any recommendations or improvements that I deem necessary have been included in the following memo to Ms. Mallott. The Impact of Sarbanes-Oxley The case states that the firm of Abernethy and Chapman is considering the acceptance of clients that are publicly traded. What specific steps would the firm have to take before they could accept an audit client that is publicly......

Words: 1083 - Pages: 5

Question Case Lakeside Company

...DISCUSSION 1. A company profit-sharing arrangement is a matter of auditor concern because it provides an incentive for employees to generate artificially high income figures. These individuals can receive direct financial benefits from the manipulation of reported earnings. This potential problem is even more of a concern in the Lakeside engagement because controls are weak and each store is geographically isolated from the oversight provided by the administrative offices. 2. This case describes the payroll system used by the Lakeside Company. Tests of controls are designed by the auditor to verify that specific control features identified as possible strengths are operating effectively. A sample of such tests would include the following: a. Compare the payroll records produced by Sarah Sweet to time tickets completed by hourly employees noting agreement as to hours worked; b. Verify that time tickets have been appropriately authorized; c. Recalculate salaried employees' monthly pay and compare to the payroll records; d. d. Recalculate salesmen's commissions and compare to payroll records; e. Recalculate payroll deductions based on government payroll tables and the data listed on the W-4 form filed by each employee. Compare these deductions to the company's payroll records; f. Recompute Lakeside's payroll taxes and compare to total reported balance; g. Verify mathematical accuracy of net wage figures (salary less deductions); h. Foot......

Words: 1468 - Pages: 6

Introductory Case Solution Lakeside Company

...The Lakeside Company: Case Studies in Auditing Summary of Introductory Case and Case 1 I. Introductory Case: A look inside a CPA firm A. Abernethy and Chapman 1. Began operations in 1969 2. 145 employees 3. Main office in Richmond, Virginia with 3 branches elsewhere in Virginia. 4. In Richmond: 10 partners, 14 managers, 21 seniors, and 42 staff auditors. 5. Tax = 11; advisory services 7; remainder usually focus on accounting and auditing services. 6. During busy times - may work in other areas. 7. 18 secretaries and other clerical staff. B. Hiring policies 1. College graduates with major in accounting. 2. Must sit for CPA exam within one year of hire date. 3. Complete 40 hours of CPE per year. 4. Promote based on seniority and technical competence. 5. Must be with firm at least two years, pass CPA exam before promotion to senior. C. Quality control standards 1. Responsibility of DeAnna Malott. 2. Training seminars on company policies. 3. Policy to sever all financial ties to clients. 4. Assigns personnel to audit and other engagements. 5. Considers experience with client's business and technical training. 6. Audits require both a consulting partner and a partner-in-charge. 7. Supervision, objectivity, and competence. D. Engagement team 1. Partner-in-charge - final decisions, not much of the work 2. Manager - on site decision-maker. 3. Senior - completes majority of work. 4. One or more staff auditors - completes majority of work. 5. Consulting partner - advises and reviews......

Words: 1159 - Pages: 5

Lakeside Case 3

...in this audit with Lakeside Company, in order from one to seven, with one being the most important to the audit: 1. There appears to be a going concern for the industry that the Lakeside company is in. In 2005, Lakeside was in trouble, but has somewhat made a turnaround in 2010 and 2011; however, there are companies similar to Lakeside that are still going out of business. Within the last six months, and audio equipment company within the Richmond area went bankrupt. Also, while Roger’s distributorship business is growing, it seems that the remainder of his business is stagnant. In addition, it appears that Rogers has strayed from his original retail store operation into a new product market that may not be strong enough to support. With a failed product line in connecting with a weak market and continuous expansion on the basis of debt, this is a concern for the audit as an entity’s ability to remain a going concern and the potential for management fraud to inflate earnings and growth. 2. Rogers’ refusal to comply with his previous auditors request to report the companies sixth store with a write down in value to assess impairment, because Rogers believed no impairment existed. This argument led to the issue of a qualified opinion. The sixth store is located in an unsuccessful shopping center and has been underperforming. The company has not even come close to breaking-even and the failures of the shopping center make it appear uncertain if Lakeside could continue......

Words: 3295 - Pages: 14

Lakeside Hospital Case

...UNIVERSITY OF ILLINOIS MEMORANDUM TO: Dr. Newell FROM:  DATE: February 14, 2013 SUBJECT: Lakeside Hospital Renal Dialysis Unit Analysis Introduction Dr. Peter Lawrence noted that as a result of an alteration in Medicare’s payment policies for hemodialysis treatments, the Renal Dialysis Unit in Lakeside Hospital will be terminated unless he can show that the unit covers its costs in addition to an adequate portion of the overhead costs. In the memorandum, I will explain the pros and cons of retaining the dialysis unit, an assessment of the results of the CVP analysis, and offer you recommendations. Renal Dialysis Unit Mission The mission of the Renal Dialysis Division is to provide hemodialysis treatment for the increasing number of patients with chronic kidney disease. Because Medicare’s policy has recently changed, the number of patients in the renal dialysis unit has dropped to fifty percent; as a result, the unit has been only providing 3120 treatments to patients with end-stage renal disease. In dialysis, part of the patient’s blood is cleaned as it circulates in an artificial kidney machine. Advantages And Disadvantages of Retaining The Dialysis Unit Based on the analysis, if the dialysis unit continues to operate as it is currently or even consolidates patients to a single shift, the unit will continue treating its patients with chronic kidney disease. If Lakeside Hospital retains the unit, this is advantageous because the patients with end-stage......

Words: 883 - Pages: 4

Lakeside Case Solution 12e

...The Lakeside Company: Auditing Cases SOLUTIONS MANUAL 12e Table of Contents John M. Trussel and J. Douglas Frazer A Note on Ethics, Fraud and SOX Questions 2 A Note on Research Assignments 3 Introductory Case 5 Case 1 14 Case 2 22 Case 3 33 Case 4 44 Case 5 58 Case 6 74 Case 7 82 Case 8 92 Case 9 101 Case 10 110 Case 11 116 Case 12 125 Case 13 136 A NOTE ON ETHICS, FRAUD, AND SOX QUESTIONS The Lakeside Company: Auditing Cases, 12th edition, has been updated in light of the accounting scandals of the early 2000s, the passage of the Sarbanes-Oxley Act of 2002, and the renewed interest in ethics within the accounting and auditing profession. Sarbanes-Oxley issues have been incorporated in two ways. First, case content has been altered to include Lakeside’s consideration of financing expansion through an initial public offering, and the resulting impact such a decision would have on Lakeside and on Abernathy and Chapman, CPAs. Second, the discussion questions and exercises have been expanded to include consideration of Sarbanes-Oxley and new auditing and independence standards, both by adding a section in the end-of-chapter material and by reference in the other questions where appropriate. Ethics questions are now specifically......

Words: 41420 - Pages: 166

Lakeside Case 7 Ex 2

...Exhibit 7 – 2 Lakeside Company Account 585, Estimated Bonus Expense, for Nine Months ended September 30, 2011 and 2012 |2011 Bonus Plan | | | | |STORE | | | | | |No.1 | |© |Computed Bonus Basis by subtracting rent and direct salary expense from GP | |® |The rate of the bonus basis was given | |§ |Computed bonus expense by X bonus basis by the given bonus % | (2) Comparison of Bonus Expense |Bonus Expense | | ...

Words: 368 - Pages: 2

Lakeside Case Book

... The Lakeside Company Case Studies in Auditing Twelfth Edition John M. Trussel Dalton State College J. Douglas Frazer Millersville University Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editor in Chief: Donna Battista Acquisitions Editor: Stephanie Wall Editorial Project Manager: Christina Rumbaugh Senior Managing Editor: Cynthia Zonneveld Production Project Manager: Carol O'Rourke Senior Operations Supervisor: Diane Peirano Printer/Binder: BindRite Graphics, Robbinsville Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text. Copyright © 2012, 2008, 2005, 2003 by Pearson Education, Inc., publishing Prentice Hall. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your request to......

Words: 48183 - Pages: 193

Lakeside Audit Case

...Audit Lakeside Case October 13, 2015 1. An engagement letter is an essential aspect in establishing an understanding between the client and the audit firm. This documentation is required in order to identify the objective and scope of the audit, outline the specific responsibilities of management and the audit firm, identify inherent limitation of the audit, ascertain the applicable financial reporting framework, and the expected forms Engagement letters are necessary in settling disputes between auditor and management. When management signs the written engagement letter, they are entered into an executor contract with the auditor. In the engagement letter presented by Abernethy and Chapman, the audit firm clearly outlined the following responsibilities for Lakeside management: 1) The financial Statements 2) Establish and Maintain internal controls over financial reports 3) Identify and ensure compliance with laws and regulations applicable to its activities 4) Make all financial records and related information available to auditors 5) At the end of the engagement, providing a representation letter Abernethy and Chapman outlined the following responsibilities for the auditor: 1) Audit financial statements for purpose of establishing an opinion on the financial position, results of operations, and cash flows in compliance with GAAP. 2) Obtain reasonable, not absolute, assurance that financial statements are free of material misstatements,......

Words: 2603 - Pages: 11

Lakeside Hospital

...HBSP Product Number TCG 5 rP os t THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GROUP, INC. Lakeside Hospital A hospital just can’t afford to operate a department at 50 percent capacity. If we average 20 dialysis patients, it costs us $425 per treatment, and we’re only paid $250. If a department can’t cover its costs, including a fair share of overhead, it isn’t self-sufficient and I don’t think we should carry it. op yo Peter Lawrence, M.D., Director of Specialty Services at Lakeside Hospital, was addressing James Newell, M.D., Chief Nephrologist of Lakeside’s Renal Division, concerning a change in Medicare’s payment policies for hemodialysis treatments. Recently, Medicare had begun paying independent dialysis clinics for standard dialysis treatments, and the change in policy had caused patient volume in Lakeside’s dialysis unit to decrease to about 50 percent of capacity, producing a corresponding increase in per-treatment costs. By February of the current fiscal year, Dr. Lawrence and Lakeside’s Medical Director were considering closing the hospital’s dialysis unit. Dr. Newell, who had been Chief Nephrologist since he’d helped establish the unit, was opposed to closing it. Although he was impressed by the quality of care that independent centers offered, he was convinced that Lakeside’s unit was necessary for providing back-up and emergency services for the outpatient centers, as well as for treatment for some of the hospital’s seriously ill inpatients. Furthermore...

Words: 2474 - Pages: 10

Lakeside Case Studies

...DISCUSSION QUESTIONS 1. Both the company’s bank and Lakeside owners would require an independent CPA firm to avoid any biases and upkeep the independence in auditing. 2. Under generally accepted auditing standards the audit is to be performed by a person or persons having adequate training which is interpreted to mean ‘technically qualified and experienced in those industries in which their clients are engaged” (Arens, Elder, Beasley, & Hogan, 2010, p. 35). This interpretation is based on recent court cases. With that information in mind this engagement should not be accepted. Care industry is significantly different than electronics so I would believe an audit in each industry would be considerably different. The auditor should certainly discuss the lack of expertise and possibly consider having a contract or new hired personnel to assist with such an audit. 3. Provided the employees truly have an understanding of how to achieve a profit sharing bonus, auditors may be concerned with the decision making of the employees. employees loyalty would be torn between providing the most independent unbiased information for the customer and the information that will provide their family with additional income. 4. A firm does face independence issues with auditing the output of systems the designed and installed regardless if the company is publicly traded or not. As the creator of the system the company may be biased as to how well the system works. The assumption that they......

Words: 460 - Pages: 2