Fraud Risk for Cerner Health

Fraud Risks

There were various factors that we considered when evaluating fraud risk concerning Cerner’s 2007 financial statements. To assess this risk, we looked at areas that were unique to the Healthcare IT industry and also at some situations that could possibly cause management to over or understate certain accounts. There were three main factors that would influence fraud risk: estimations of software development costs, the pressure of the industry, and the backlogging of contracts.

The net realizable value of software costs, which is based on estimates, increases the fraud risk. According to Cerner’s 10-K, net realizable value is computed based on many estimations. The estimations that have to be made include: the estimated future gross revenues from each software solution and also the estimated future costs of completing and disposing of that solution. If the judgment is off for those estimations, there could be a material difference in the financial statements for that period. There’s the possibility that management could want to increase the net realizable value of a software solution to make their financial statements more appealing for the year. This type of fraud could possibly overstate the assets account. To reduce this risk, the auditor can perform various analytical procedures to see if there have been any changes in these estimations throughout the year.

Cerner operates in an intensely competitive environment with many factors changing rapidly. The success of the business depends on how well the company can adapt to all these changes. The main concern that we would have with fraud risk is the possibility of Cerner manipulating their financial statement numbers to keep up with the competition. The profitability of the company depends on how quickly they can respond and management has the pressure of keeping the costs down. Since technology is the driving force of the company, system