Garden Spa (GP) is a local spa and a client of Jordan & Chu LLP (J&C). Dylan is a CPA who works for J&C on the review engagement for GP. He is working on the revenue and payroll accounts for the review. Dylan has collected the following information about GP: 1. There are 100 full-time memberships. These members pay $2,000 a year for a set number of services. All payments are received upfront. Twenty percent of these memberships started halfway through the year. 

2. Drop-in spaces cost $150 per day. Each day there is drop-in space for 10 people. During the most recent year, this was used at a rate of 50%. 

3. GP employs 20 full-time staff. At the start of the year, the employees were given a 5% salary increase. 

4. GP is open 355 days per year and the fiscal year is January 1 to December 31. 

Required: Using the RAP approach, identify the risk and the account/assertion affected, and design a review procedure for Dylan to perform to address the risk for the membership revenue, drop-in revenue, and payroll expense.

Answer rating: 100% (QA)

Risk Membership revenue The risk is that membership revenue may be overstated due to memberships bei... View the full answer