CPA Audit - Cash
Why would an auditor send a confirmation to a bank where the reporting entity's account has
been closed-out during the year? ✔✔A bank confirmation is designed to substantiate the
actual balance in an account. The auditor wants to determine that the balance is actually zero.
Fraud can be carried out within a company by use of an account that has been supposedly
closed out when it actually has not been. Thus, deposits can be made into the account without
the company keeping any official record.
Why does the auditor verify the balances shown in a bank reconciliation? ✔✔A bank
reconciliation is especially important to the auditor because the reconciliation often has to be
manipulated in some manner to cover up the theft of funds that have been stolen from the
company. Therefore, if the reconciling items can be verified, this is evidence that no cash has
been stolen from the entity. However, the auditor should use great care when reviewing the
reconciliations of a number of multiple bank accounts that an entity makes use of, as there can
be kiting issues to consider.
What is the difference between lapping and kiting? ✔✔Lapping occurs when cash is stolen
upon receipt from one customer's account. Later, the cash that is received from a second
account is applied to the first account to cover up the original theft. Either a certain amount of
money has been taken, or this amount could be increased by the theft of additional funds. All
customer accounts stay relatively current by the posting of later received funds from additional
customer remittances.
Kiting occurs when funds are stolen from the company and, to cover this theft, the employee
transfers money from one bank account to another account right before year-end. The
employee records an in-transit increase in one bank account in Year 1, but records the decrease
in the other account in Year 2. This fraud is most convenient and prevalent at period end,
especially when there are often several legitimate items of cash always in transit between
accounts.
What is a bank confirmation?
What information is provided to the auditor by a bank confirmation?
Who signs the bank confirmation request? ✔✔A bank confirmation is a request of a bank by
the auditor for information on certain balances either owned or owed by the client at the end
of the reporting period. This request would include information regarding existing client
accounts, loans, interest rates, and security agreements.
Why would an auditor send a confirmation to a bank where the reporting entity's account has
been closed-out during the year? ✔✔A bank confirmation is designed to substantiate the
actual balance in an account. The auditor wants to determine that the balance is actually zero.
Fraud can be carried out within a company by use of an account that has been supposedly
closed out when it actually has not been. Thus, deposits can be made into the account without
the company keeping any official record.
Why does the auditor verify the balances shown in a bank reconciliation? ✔✔A bank
reconciliation is especially important to the auditor because the reconciliation often has to be
manipulated in some manner to cover up the theft of funds that have been stolen from the
company. Therefore, if the reconciling items can be verified, this is evidence that no cash has
been stolen from the entity. However, the auditor should use great care when reviewing the
reconciliations of a number of multiple bank accounts that an entity makes use of, as there can
be kiting issues to consider.
What is the difference between lapping and kiting? ✔✔Lapping occurs when cash is stolen
upon receipt from one customer's account. Later, the cash that is received from a second
account is applied to the first account to cover up the original theft. Either a certain amount of
money has been taken, or this amount could be increased by the theft of additional funds. All
customer accounts stay relatively current by the posting of later received funds from additional
customer remittances.
Kiting occurs when funds are stolen from the company and, to cover this theft, the employee
transfers money from one bank account to another account right before year-end. The
employee records an in-transit increase in one bank account in Year 1, but records the decrease
in the other account in Year 2. This fraud is most convenient and prevalent at period end,
especially when there are often several legitimate items of cash always in transit between
accounts.
What is a bank confirmation?
What information is provided to the auditor by a bank confirmation?
Who signs the bank confirmation request? ✔✔A bank confirmation is a request of a bank by
the auditor for information on certain balances either owned or owed by the client at the end
of the reporting period. This request would include information regarding existing client
accounts, loans, interest rates, and security agreements.
