Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients
Question:
€¢ Shady Oaks Centre, a private treatment centre
€¢ Gardens Nursing Home Ltd., a private nursing home
€¢ Total Laser Care Limited (TLCL), a private clinic that specializes in the laser treatment of skin defects. Year end for all HCHG entities is June 30.
During the 2011 financial year, Shady Oaks released its own line of treatment supplies, such as orthotics, massage oils, and exercise discs and balls, which are sold by direct marketing by a sales team employed by the centre. The sales team receives a base salary and a bonus component, which is based on the dollar value of sales it generates. You recognize that the team's main motivation is to maximize its bonuses. You select a sample of payments received by the centre post year end and trace the payments back to the general ledger and customer account balance.
Testing results of Gardens Nursing Home's accounts payable
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In addition, you are reviewing the results of a number of tests in relation to accounts payable at Gardens Nursing Home.
Required
(a) Identify the key account balance at risk because of the remuneration of the sales team at Shady Oaks. Identify and explain the key assertion at risk.
(b) Identify the key account balance and key assertion being tested using the substantive procedure. Given the bonus structure in place for the sales team, justify your answer.
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...
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a The sales team is remunerated in two ways a base salary plus a bonus based on the dollar values of ...View the full answer
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