Background: According to CVS Health Corporation’s 2014 10-K report, the company contains three reportable segments: (1) Pharmacy Services, (2) Retail Pharmacy, and (3) Corporate. The Pharmacy Services segment provides Medicare, specialty & mail order pharmacy, prescription management systems, clinical services, and disease management programs to those in need. The Retail Pharmacy segment entails the entire CVS store itself, which contains the pharmacy, minute clinic, and front store selling merchandise. Prescription drugs accounted for about 70% of the company’s net revenues for the past three years (U.S. SEC Form 10-K). The purpose of this memo is to address the topics of inherent risk, control risk, and detection risk. We will do this by addressing an accounting policy stated in the company’s 10-K report. We will discuss risks associated with the accounting policy, recognize company controls, and test those controls. Substantive analytics and tests of details will follow. Lastly, we will discuss fraud and extended procedures to detect fraud. To end, we will conclude by outlining the main points and emphasizing our audit plan. Accounting Policy and Assertion Evaluation The significant accounting policy that we’ve decided to review would be CVS Health Corporation’s revenue recognition policy. We are most concerned about the company overstating sales revenue and adding fictitious sales (Louwers, Ramsay, Sinason, Strawser, Thibodeau, 2015, pg. 272). According to the
CVS is a company that has been around for over fifty years and focuses on filling the needs of an older population looking to get their medication and other essentials all in a one-stop shop. A very similar business in this niche is Walgreens. Through evaluation of both sets of financial statements from each company, the investor can make a better educated decision on whether or not to invest in stock at CVS.
Appendix A.2 also lists several factors that could provide opportunities for management/employees to commit fraud. One factor that could lead to fraud is if, “There is ineffective monitoring of management as a result of: domination of management by a single person or small group without compensating controls.” The auditors should have taken notice of the lack of controls and segregation of duties with respect to Phar-Mor’s
Walgreen Co. (Walgreens) and its subsidiaries operate a drugstore chain in the United States. “The Company provides its customers with multichannel access to consumer goods and services, and pharmacy, health and wellness services in communities across America” (Walgreen Company). The firm currently operates two mail-order facilities and has 7,752 retail drug stores located across all 50 US states, Guam, Puerto Rico, and the District of Columbia (Walgreens). Prescription drugs account
CVS Health Corporation is an integrated pharmacy healthcare and head quartered in Woonsocket, RI. The President and CEO of CVS is Larry J. Merlo. The company has three segments, Pharmacy services, Retail pharmacy and Corporate. CVS was previously known as Caremark Corporation and the name was changed to CVS on September 3rd 2014.
This course is the first in a two-part series that deals with auditing a company 's financial reports, internal controls, and
2 Managing fraud risk: The audit committee perspective Fraud in a fi nancial statement audit
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate (Louwers & Reynolds, 2007). We believe that the audit evidence obtained is sufficient and appropriate to provide a reasonable basis for our opinions.
From the beginning, Walgreens has yielded a better gross profit by an average of 8% over CVS/Pharmacy. Gross profit is the amount left over after cost of goods sold is taken from revenue. Although, both have been steady with their percentage gross profit, CVS/Pharmacy 21% & Walgreens 28%, Walgreens has gained more.
Both CVS Corporation and Walgreen Company operate retail drug stores in the United States. In addition to having pharmacies and selling prescription and non-prescription drugs both retailers also sell general merchandise. This includes items like beauty and cosmetic products, convenience foods, household items and film & photofinishing services.
In order to understand financial statements better, two healthcare organizations, one for-profit and the other non-profit, will be selected and their financial statement will be reviewed. The first healthcare organization that was selected was Adeptus Health, Inc. (Adeptus), a for-profit entity. Adeptus was founded in 2002, and currently serves communities in Colorado, Texas, and Arizona, with partnerships within Ohio and Louisiana (Adeptus, 2016). The company was founded to improve services within the emergency room (ER) setting by offering the community eighty-one free standing ERs and two ER facilities within a fully licensed hospital, as of the end of 2015 (Adeptus, 2016). Adeptus boasts being one of the best companies to work for in Texas in 2016, and has won the Press Ganey Guardian of Excellence Award for three consecutive years, since 2013, which is awarded to ERs that exceed patient satisfaction over the ninety-five percentile across the country (Adeptus, 2016). The company aspires to provide high-quality care that is patient-centered while being cost effective and supportive to their staff.
Current Industry. The retail drug industry’s 2010 combined annual revenue was $277 billion, according to the National Association of Chain Drug Stores (Drug Store Industry…, 2011, par. 4).The big players in this industry are CVS Caremark, Corp. Walgreen Co., and Rite-Aid, Corp with Wal-Mart and Target developing more of a presence in recent years. According to the article, the drug store industry is very concentrated with the 50 largest companies generating about 70 percent of the industries revenue (Drug Store Industry…, 2011, par. 4). The industry had grown substantially in the last 50 years and will continue to innovate and develop well into the near future.
During the performance of this integrated audit, require numerous judgments about the internal control and overall financial reporting and how well it addresses risks of material misstatements within the financial statements (AICPA, 2014). After re-evaluating the previous errors found from the previous audit, the audit team found the corrective actions to be appropriate and justified in elimination of human error by implementing additional checks and balances within the manual process. No additional misstatements have been found and all internal controls off the financial reporting seem appropriate and just.
The latest development for CVS was acquiring the nationwide network of Target store pharmacies. As of December 2015, their network has grown to include “1,672 pharmacies across 47 states and will operate them through a store-within-a-store format, branded as CVS/pharmacy.” Taking their reach of well over 10,000 places where a consumer could find health access from prescription refills to checkups to weight loss consultations and
For CVS’s legal concern, not only do they have to follow federal and state guideline for employees, they have to follow federal guidelines for pharmaceuticals, legal requirements for their nurses, doctors and pharmacist. In addition CVS is expanding into global markets, and that opens them up to foreign legal requirements. Socially, CVS Caremark has a long-standing track record of sound corporate governance and stands firmly committed to acting with integrity and holding