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Evaluating the level of SOX regulations that apply to for-profit and not-for-profit health care organizations, indicating whether or not mandating SOX requirements for non-profits might reduce fraud and increase corporate governance

The SOX which stands for Sarbanes-Oxley act and in 2002 it has introduced considerable changes in rules and regulations relating to corporate governance and financial practices.

In a healthcare industry SOX is based on whether the company is profit oriented or nonprofit organization. In profit organization healthcare it applies only to public companies in cases of accounting errors and criminal and fraud practices but in the nonprofit organization, there are only two exceptional cases like banning of harming the whistleblower, protection against annihilation and modification and not disclosing of important documents.

SOX is used generally to reduce fraud and increase corporate governance as it includes regulation under section 404 which gives responsibility to top management to have a control on internal procedures by establishing, continuing and assessing the workflow and thus limiting the decision power of trustee in a healthcare, introducing accountability on compensation fees, providing information about patient list and indemnification of insurance companies (Banerjee, Humphery-Jenner & Nanda, 2015).

SOC does not command the technology-driven process like computer security policy but overpowering this barrier can reduce fraudulent activities by strengthening the database through antivirus. Imposing SOX can lead to stern values of the organization which will transfer decision power from trustee to board of directors thus leading to correct decision; bookkeeping should be maintained on a regular basis so that records reflect the true nature of the organization and also avoiding concealing of important documents and secure internal controls can lead to minimization of fraudulent activities and boost corporate governance.

It has been noticed that nonprofit health care organizations remain under tremendous pressure in terms of financially transparent and responsible. Specifically, in the part of nonprofit organizations, SOX has worked towards providing a certain level of clarity. This act has been precisely referred to as “The American Competitiveness and Corporate Accountability Act 2002”. In terms of publicly traded companies, it makes them sure to consider the standards for increasing the role of board members in the sphere of financial transactions and audit procedure. As influenced by the views of Chhaochharia et al. (2016), on the part of nonprofits an audit committee is expected to have a financial expert in order to oversee the activities of outside audits.  The responsibilities of the auditors have been governed by Sarbanes-Oxley. It also requires the CEO or CFO of a nonprofit health organization to certify the financial statements of the organization by attesting to their appropriateness. Hence, this can be well understood that SOX has worked towards simplifying the financial procedure in order to increase corporate governance.

Determining whether SOX has been effective in regulating the ethical behavior of for-profit health care organizations.

In a for-profit health care organization, the SOX applies to a public trading company in cases of accounting errors and criminal and fraudulent cases. So it can be inferred that Sox can be effective in regulating ethical behavior of for-profit health organizations as it is necessary to have compliance with code of morality and values as it gives freedom to staff members to report and unearth unscrupulous activity prevailing in the health organization by ensuring security to the whistleblower, thus it will have a check and control on fraudulent activities and the menacing act cannot be concealed like fishing in medical bills of patient. As influenced by the views of Asare & Abdolmohammadi (2017), if the implementation of SOX has been made effective then the organization will enjoy advantages as it allows encouraging resolution of rivalry inside the organization. The accounting and financial statements can be produced on time with the certainty of reports with the correct database of the patient list thus addressing the issues pertaining to a patient in the hospital by having proper care for the diseased person and giving medication on a timely basis that will ensure quick recovery of the patient. The other issue is related to vague advertisement and marketing of healthcare which can lead to wrong awareness of the treatment so with SOC guidance proper steps could be taken to ensure correct marketing decision.  It will also ensure strong implementation of protocol by following the guideline set under the section of SOX.

In terms of profit healthcare organization, SOX has been effective in terms of increasing corporate governance. According to the views of Blair (2016), the part of moral criticism has been voiced. The ethical criticism can be grouped under six different parts. The first one is the issue of access in health care while the second one indicates the unfair competition against the nonprofit organization. It has treated healthcare as a part of a commodity that a specific right. The part of organizational controls incentives has been highlighted in terms of destroying the patient and physician relationship and in creating the trust issues between them. The part of undermining a medical education and the constitution of “medical industrial complex” has been highlighted in this particular act.

Review the audit report issued by the external auditing firm from the company's Website for the year it was accused of fraud. Then, determine whether the external auditors were negligent in preparing the audit report for the company. Formulate an opinion regarding which Internal Control was deficient or what GAAP was violated.

HCA healthcare is an American healthcare profit organization established in 1968.

In 1993 accusation was made and lawsuits were filed by previous employees on account of the question arising from the billing perspective which accounts to the fraud of millions of dollars

The fraud was relating to billing medical receipt to house health care workers, payment of illegal in the sale of house health companies and bribed doctor to refer patients to them and in return, the owner gave a free loan to doctors, free accommodation and use of hospital properties like free medicine.

The auditor was not competent in evaluating the correct reports of Auditing and also they were careless during evaluation of financial statement and accounting records. The auditor provided adverse assessment of the audit report because if they had presented correct report then they must lose the wealthiest patient who used to visit the hospital and used to take services from there and it was only done to gain revenue and opportunistic nature by over sighting of public gain and shareholders (Chu & Hsu, 2018).

The GAAP which was violated was giving free rent to doctors who had provided patients to the hospital and in return the hospital allowed the doctors to use hospital furniture, free medicine, there was no provision made for bad debts and also the purchase of equipment was missing this comes under depreciation section under GAAP, the other fraudulent act was overvaluation of assets and also showing payment of more taxes rather than original taxes thus showing less profit to the business.

Determination of the provisions of SOX that have been violated in health care fraud case

The provision which was violated in case of health care fraud are as follows:

• Failure of the free attitude of the evaluators.

• Failure in constraining control from inside or violation of GAAP.

• Biased auditor and constrained audit committee.

• Failure in providing a legal code of conduct, morale, ethics, and values.

• Seizing of authority and powers from the administration of audit clients.

It has been noticed that a range of violations has been executed in the case of HCA Healthcare. The procedure of billing receipt has been the main accused issue in this part that has determined illegal payment and bribe to the doctor for referring the patients. The owner even has paid the free loan to the doctors.

The provisions that have been violated are the failure of the evaluator as the auditor has not been effective to analyze the reports correctly. Violation of GAAP has been done in terms of having effective control over the internal process. As influenced by the views of CAO et al. (2016), the part of biased auditor has ensured a total failure of the system and the regulation come under SOX. A failure in implementing an effective legal code of conduct has been missing throughout the procedure of corporate governance. The power shifting play has been prominent in terms of seizing the authority from audit clients and administrations. Hence, in this precise way, the breaches and violations of the norms have taken place in the organization.

Recommendation for making improvement

The SOX act provides a remedy to the issue by sentencing fraudsters for a criminal offense like a fraud in the healthcare domain. As influenced by the views of Basile, Handy & Fret (2015), Sarbanes Oxley Act has perfectly served its purpose in terms of increasing the effectiveness of corporate governance while providing a remedy for definite violations and breaching. The law enforces that any individual who has committed a crime or committed fraud will be sentenced for 20 years of prison in jail which is the advancement to the securities law. Hence, following the regulations, it can be stated that the owner and auditor can be judged on this specific ground in order to determine the level of crime executed from their end. The act also contains a provision for punishment if the company provides false financial and accounting principles under corporate and criminal law. The law also charges fine from the company of committing fraud. As this piece of the act has stated the punishment in terms of charging amount, hence, the company HCA is required to be charged on the same ground for committing the fraud (Blair, 2016).

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