The company I chose is Insperity Inc. – they are a PEO (Professional Employer
Organization) Provider that helps small and medium size businesses with human resource
services, worker’s compensation, health benefits and unemployment.
The link to Insperity’s December 31, 2021 Annual 10K:
https://www.sec.gov/ix?doc=/Archives/edgar/data/92380/000009238022000007/luv-
20211231.htm
Insperity Inc. risk factors that could lead to the risk of overstating receivables/revenues or
understating payables/liabilities are:
• Labor shortages and increasing competition for highly skilled workers.
• They are subject to covenants under their credit facility that may
restrict business and financing activities. Failure to comply with these
covenants may result in an acceleration of indebtedness, which could have a
material adverse effect on business, financial condition or results of
operations.
• They assume liability for Worksite Employees (“WSEE”) payroll,
payroll taxes, benefits costs and workers’ compensation costs and are
responsible for their payment regardless of the amount billed to or
paid by their clients
• Increases in health insurance costs or their inability to secure
replacement health insurance coverage on competitive terms.
• Health care reform could affect their health insurance plan, which
would lead to a significant disruption in their business.
• Increases in workers’ compensation costs or inability to secure
replacement coverage on competitive terms could lead to a significant
disruption to their business.
• Their ability to adjust and collect service fees for increases in
unemployment tax rates may be limited.
• Many of the contracts for PEO HR Outsourcing solutions may be
canceled on short notice. Their inability to renew client contracts or
attract new clients.
• They could be subject to liabilities for client and employee actions.
• They could be subject to reduced revenues, increased costs, liability
claims, or harm to our competitive position as a result of data theft,
cyberattacks or other security vulnerabilities.
• Competition and other developments in the HR services industry may
impact our growth and/or profitability
Based on these risks factors an auditor would need to design the following specific tests
for Insperity Inc.’s audit.
a a a a Receivables/Revenues
• Review contracts for current clients for notice dates
• Review outsourcing contracts for notice dates – such dates should be 30 to
60 days allowing time to contract another source.
• Review all uncollected fees and determine adequacy of allowance for
uncollectible accounts
• Need to ask Insperity about their competition and new developments in HR
services industry.
• Review any outstanding insurance claims as a result of data theft or
employee liability claims
• Review aged listing of receivables and reconcile to ledgers.
Payables/ Liabilities
• Review trial balance of payables and reconcile with the ledgers
• Vouch balances of payables to selected creditors by inspecting supporting
documentation
• Reconcile liabilities with creditors monthly statements
• Confirm accounts payable
• Search for unrecorded accounts payable
• Perform procedures to identify accounts payable to related parties
References:
https://www.sec.gov/ix?doc=/Archives/edgar/data/92380/000009238022000007/luv-
20211231.htm
Whittington, O. R., & Pany, K. (2022). Audit Evidence and Documentation. In Principles
of Auditing & Other Assurance Services. McGraw Hill LLC.
