During 2020, Greer and Associates gained a new client, Ultimate Health Inc. (Ultimate Health). Ultimate Health’s businesses include private treatment facility and laser treatment of skin defects. Yearend for all Ultimate Health entities is September 30. You are the auditor-in-charge of the audit of Ultimate Health.

During the 2019 financial year, Ultimate Health released its own line of treatment supplies, such as orthotics, message oils, and exercise discs and balls, which are sold by Ultimate Health’s sales team. The sales team receives a base salary and a bonus that is based on the dollar value of sales it generates. You selected a sample of payments received by Ultimate Health post year end and trace the payments back to the general ledger and customer account balance.

In addition, you are reviewing the results of a number of tests related to accounts payable, summarized in the table below.

Test	Procedure Performed and Results	Conclusion
1	A number of suppliers were selected from the list of trade creditors at year end and balances traced to supplier invoices and goods received notes to ensure that goods were received prior to the year end. For two creditors out of 15 tested, the balance was only marginally overstated.	Accepted as no material errors were found.
2	A number of suppliers’ invoices were selected and checked to ensure that the pricing and discount terms were reviewed and authorized by the purchase manager. Three out of 20 invoices tested had not been authorized and incorrect discounts were recorded for these invoices. A follow-up of the three samples with deviations did not highlight a pattern or specific reason for the errors.	Accepted as the errors in discounts taken were immaterial.

a. Identify the key account balance at risk because of the remuneration of the sales team at Ultimate Health. Explain the potential misstatement and why the balance is at risk (2 marks)

b. For each test indicated in the table above, answer the following: (there are 4 parts to this question):

1. Identify whether it is a test of control or a substantive test of detail and explain why.
2. Determine the key assertion addressed by the test procedure.
3. Explain why the conclusion reached is appropriate or not appropriate.
4. For each test, provide one additional procedure that you believe needs to be performed and explain its purpose.

Answer rating: 100% (QA)

aThe key account balances at risk because of the remunerAtion of employees depends on fixed salary a... View the full answer