NYPP Audit Plan

1. AUDIT PLAN: HealthCare
The New York
Presbyterian Hospital &
Subsidiaries
Year Ended December 31,2014
Audit 461
Gabriela Candelaria, Julie Colacurto, Wilson Lauture,
Christopher Marcello & Maria Ortiz

2. General Information
1) General revenue recognition guidance
o The allocation has to be done proportionately to the relative of each
performance obligation
a) New standards defines acceptable methods to estimate
relative’s obligation
o Distribution of transaction prices to each performance obligation will
be recognized when it’s satisfied
In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers, and the International Accounting
Standards Board (IASB) issued International Financial Reporting Standards (IFRS)
15, Revenue from Contracts with Customers.
FASB and the IASB have basically achieved convergence with these standards, with
some minor differences related to the collectability threshold, interim disclosure
requirements, early application and effective date, impairment loss reversal, and
nonpublic entity requirements.
This document will focus on the guidance contained in FASB ASU No. 2014-09
(revenue recognition standard); the AICPA Financial Reporting Brief: Roadmap to
Understanding the New Revenue Recognition Standard highlights the differences
between the two standards.
The revenue recognition standard affects all entities—public, private, and not-for-
profit—that have contracts with customers, except for certain items, which include
leases accounted for under FASB Accounting Standards Codification (ASC) 840,
Leases; insurance contracts accounted for under FASB ASC 944, Financial Services—
Insurance; most financial instruments, and guarantees (other than product or
service warranties).
The new revenue recognition standard eliminates the transaction- and industry
specific revenue recognition guidance under current GAAP and replaces it with a
principle--based approach for determining revenue recognition.
The guidance was originally effective for annual reporting periods of public entities
beginning on or after December 15, 2016, including interim periods within that
reporting period. For all other entities, the amendments in the new guidance were
originally effective for annual reporting periods beginning after December 15, 2017,
and interim periods within annual periods beginning after December 15, 2018.
2) Industry-specific revenue recognition guidance
For-profit hospitals represent the smallest number in the industry (see
www.aha.org). If the hospital is a for-profit unit, it records revenues on the accrual

3. basis and applies general for-profit GAAP guidelines under FASB Concepts
Statement (CON) No. 5. Recognition and Measurement in Financial Statements of
Business Enterprises. Also, if the for-profit hospital is publicly traded, certain
provisions of SEC Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in
Financial Statements, and SAB No. 104, Revenue Recognition, apply. SABs 101 and
104 discuss medical billings for third-party payors and reach the conclusion that
collections must occur before revenue is recognized for the collection agent, not the
hospital. (See Chapter FIN-I C.3.a for a discussion of these SABs).
Revenue Recognition impact on All Hospitals
In summary, notwithstanding the classification (for-profit, not-for-profit, or
governmental) of a hospital unit, its primary revenue source is patient revenue. This
revenue can be further viewed as routine service, premium service, resident service,
etc., and is generally disclosed as operating revenue. To arrive at "net" patient
revenue, all adjustments are then made, and third-party payors would be one such
adjustment.
Revenue from third-party payors, even if the hospital unit uses a billing collection
agent (as discussed in SABs 101 and 104), will be realized and recognized revenue
to the hospital notwithstanding the collection. This is because of the adjustment that
the third-party payor reimbursement makes, as an estimate, to the gross patient
service revenue. Third-party payor revenue should be recognized at the time the
service is rendered, at the hospital’s customary adjusted rates.
Revenue Recognition Medical Practices
As in any service business, cash collections and credit policy are paramount. Most
practices report revenues upon tendering of the service, consistent with FASB
Concepts Statement (CON) No. 5,Recognition and Measurement in Financial
Statements of Business Enterprises. However, despite this standard method of
revenue recognition for both cash and third-party payor patients (which is similar
to hospital accounting; see the discussion of hospital revenue recognition above),
many dental and medical practices adopt the cash basis (not the accrual basis) for
revenue recognition. This lends support to record keeping for tax preparation
purposes, and the cash basis records are generally converted to the accrual basis for
loan or lease application purposes.
Medical practices treat third-party payors such as Medicaid in much the same
manner as hospitals do, with revenue recognition occurring at the time service is
rendered, with an adjustment to revenues for experience with third-party payor
payments and collectability of direct billings to patients, resulting in net patient
service revenue.

4. Company Specific Information
1) Description of the Materially Significant Elements of the Revenue for your
company
With five campuses staffed by more than 20,000 people, NewYork-Presbyterian
(NYP) annually treats over a million patients in metropolitan New York, earning
$3.5 billion in revenue. It has been recognized as one of the most comprehensive
university hospitals in the world, employing the leading specialists in every medical
field. The hospital has been adopting spending policies and an investment for
endowment assets that may provide a stream of funding. They have been trying to
seek ways to maintain the purchasing power to the funds. In order to satisfy their
long-term returns, they are working on a total return strategy. They employ this
long-term equity oriented strategy in investing in traditional and alternative asset
classes. The New York Presbyterian’s patient mix consists of 37.3% of commercial,
32.6% Medicare, 28.1% Medicaid, and 2% other.
New York Presbyterian Hospital, has two different geographic segments, New York’s
leading health care systems have split into two opposing camps on the question of
preparing for a long-term future in the industry
A.North Shore-LIJ, Montefiore and Mount Sinai, believes in aggressive up-sizing
B.The other camp, comprised of New York Presbyterian and NYU Langone
2) Audit Risk assessment for New York Presbyterian
i. Assess the inherent risk of the revenue process
The auditor must assess the inherent risk associated with the revenue cycle and
perform tests to determine it is relatively free of error or fraud. The inherent risk for
this cycle is related to the cutoff dates for particular types of sales and the pressures
from management to misstate revenues. By conducting so-called substantive tests
and tests of controls, the auditor can provide some assurance that the revenues of
the company are recorded accurately.
Environment and external factors: Here are some examples of environment and
external factors that can lead to high inherent risk:
Rapid change: A business whose inventory becomes obsolete quickly experiences
high inherent risk.
Expiring patents: Any business in the pharmaceutical industry also has inherently
risky environment and external factors. Drug patents eventually expire, which
means the company faces competition from other manufacturers marketing the
same drug under a generic label.
State of the economy: The general level of economic growth is another external

5. factor affecting all businesses.
Availability of financing: Another external factor is interest rates and the
associated availability of financing. If your client is having problems meeting its
short-term cash payments, available loans with low interest rates may mean the
difference between your client staying in business or having to close its doors.
NYPH doesn’t have a significant audit risk. NYPH were not looking to make a
significant amount of revenue or were pressured to meet some kind of deadline. The
other types of examples above that can lead to high inherent risk don’t really seem
to affect NYPH. The only thing that potentially could stick out is the State of the
economy as well as maybe the new types of healthcare such as Obama Care that
could potentially harm doctors as well as the hospital and medical industry. Overall,
looking at NYPH as a whole, the inherent risk of NYPH revenue cycle is relatively
low compared to other industries.
3) Perform a preliminary analytical review of the revenue account and explain
the rationale for any significant changes in the revenue from the prior year
Operating Revenues 2013 4,264,510
2014 4,373,531
New York Presbyterian Hospital has had a significant change in revenue from 2013
– 2014 the increase was $109,021. Since this is a substantial change in revenues it is
important to look at NYPH closely to see if this amount of increase makes sense. It is
imperative to go back into companies financial statements to check for any possible
mistakes as well as possible fraudulent behavior that could unfortunately go on in
companies. It is vital to go and see what the company has done in the past year to
see if the change in revenue is accounted for. In the news article, in
POLITICONEWYORK beta, entitled, “ New York’s leading health systems differ on
growth strategy.” The article talks about the growth of NPH and clearly states, “New
York-Presbyterian took over Lawrence Hospital Center in Bronxville in July.” The
Acquisition of the Lawrence Hospital Center, in 2014 could have definitely added to
the significant changes in revenue that have taken place from 2013 to 2014. On July
1, 2014 NYP Community Services, Inc., a wholly owned subsidiary of the Hospital,
acquired Lawrence Hospital Center and Subsidiaries. The acquisition included a
291-bed approved acute care hospital located in Bronxville, New York, which
included a certified home health agency, a certified hospice program, a bereavement
center, and Lawrence Medical Associates, P.C. (LMA), a state of New York
professional corporation (collectively, Lawrence). With this acquisition, NYPH has
gained a significant and impressive asset in the Lawrence Hospital Center and
Subsidiaries. With the 291 bed approved hospital as well as the different assets
within the Lawrence Hospital Center it certainly makes sense that the net assets has
increased to about $300,000 from 2013 to 2014. Another aspect of increased
revenues could be that the hospital accepts and has agreements with third party

6. payors. The Hospital has agreements with third-party payors that provide for
payment for services rendered at amounts different from its established rates. Two
examples of third party payment programs that NYPH accepts are Medicare
Reimbursement and Non­Medicare Reimbursement. The Hospital’s decision to
accept third-party payment program is extremely smart on their end and definitely
would increase number of patients which all in all equals more revenue as well. Just
to illustrate in past years, for the years ended December 31, 2013 and 2012, the net
effect of the Hospital’s revisions to prior year estimates resulted in net patient
service revenue increasing by approximately $38.4 million and $40.0 million,
respectively.
4) Develop a table of internal control procedures that you would perform to
ensure the operating effectiveness of the revenue process
The cycle concept presents a framework for viewing the interrelationship between
accounts affected by the same transaction or business activity. Audit evidence
verifying the existence and proper valuation of accounts receivable also provides
evidence of the existence and valuation of recorded revenue, and vice versa. Some
internal control procedures that we would perform to ensure the operating
effectiveness of the revenue process is definitely separation of duties, Access
Controls, Physical Audits, Documentation, Trial Balances, Reconciliations, and
Approval Authority.
Effective controls reduce the risk of asset loss & help ensure that plan information is
complete and accurate, financial statements are reliable, and that the plan complies
with laws and regulations. The main component for the internal controls of an
organization, no matter which cycle they are pertinent to, is management's adoption
and adherence to high ethical standards and strong controls. Tests of controls for
the revenue cycle include
1. who accepts & approves credit sales
2. the separation of duties for filling out, shipping, & recording sales orders
3. appropriate documentation for collecting and depositing cash & recording
the receipts
4. the appropriate authority & documentation to grant discounts for early or
cash payments and sales returns
5. management authorization to determine that an account is uncollectible &
should be written off to bad debts
Assertions
1. Existence
2. RIghts & Obligations
3. Completeness
4. Accuracy
5. Valuation