Question

AP6.9. (LO 3) What can go wrong at the transaction level Carmel Harrison owns and runs Emerald Spa, a business providing women-only hairdressing, beauty, relaxation massage, and counseling services in a small tourist town. Ninety percent of the clients using the beauty and massage services at Emerald Spa are weekend visitors, but 80% of the hairdressing and counseling clients are locals. The masseuse and counselor have appropriate qualifications and licenses, allowing clients to claim the cost of the service(s) with their private health insurer, if an appropriate receipt is provided when the client pays. Emerald Spa has just opened another branch of the business in a town 100 miles away, and there are plans to open a third branch nearby next year. Carmel has been very busy establishing each new branch and relies on staff in each office to run the day-to-day operations, including ordering supplies and depositing cash receipts. In addition, the branch manager organizes the staff and authorizes their time sheets. Carmel makes the payments for rent, power, salaries, and large expenditures, such as furniture purchases.

Required

Explain what could go wrong with these transactions if the system of internal control is not effective for each transaction class assertion.

Answer 1

Answer:-

Examples of transaction:-

●cash receipts from customers for services ●Reimbursement from health insurance companies for counselling and massage services

●Credit purchases of supplies, such as oils, hair products

●Electronic funds transfers to pay wages ●Cheque payments for rent, electricity, furniture purchases, insurances, tax remittances, advertising

●●■ Potential problems in transactions if control system does not meet objectives include: ●Incorrect pricing used for customer services; ●services provided but not charged to customers or recorded in the accounts;

●duplicate receipts recorded

●Not all cash receipts are banked intact in a timely manner

●Failure to claim reimbursements from health insurance companies on