TOPIC QUESTIONS:

AUDIT OF CASH & CASH EQUIVALENTS

1. Enumerate at least 3 sample procedures that will be applicable in auditing cut-off bank statement

2. Frank, a cashier receives remittance from the mailroom and also prepares daily deposit slip. What
would an auditor do and consider to check the compatibility of cashier's work? Explain.

3. While you are conducting an audit, you suspected that kiting May existed in the company's accounting
records. What particular evidence that you must obtain in order for you to verify if kiting really exists?

Answers:

1.)

Deposit of the year-end undeposited collections.

Completeness of year-end outstanding checks.

Corrections of bank errors.

2.)

An auditor would consider a cashier’s job description to contain compatible duties if the cashier

receives remittance from the mailroom and also prepares the daily deposit slip.

3.

Kiting is an overstatement of the true cash balance at year-end caused by recording the receipt, while

failing to record the disbursement, associated with a transfer between cash accounts.

Kiting Testing prepare a schedule of interbank (or intercompany) transfers to verify that both sides of the

transfer are properly accounted for (that is, verify that the cash receipts journal and the cash

disbursements journal both reflect the transfer in the same proper period) and to detect any "kiting."
To check kiting is the deliberate floating of funds between two or more bank accounts in order to make it

appear that more cash is present than is really the case. Auditors can detect the preceding signs of check

kiting by reviewing an audit client's bank account activity. The only trouble is that criminal check kites

often destroy the banking documents. A company should provide the auditor access to all deposit slips

and cancelled checks. However, in today's computerized banking environment, many documents exist

only in electronic form or as scanned images. The auditor may need to review the client's account activity

directly on the bank's website.

PROBLEMS
FERY ANN C. BRAVO

1.

a. Trace year end outstanding checks and deposits in transit to the cutoff bank statement.
b. Compare dates, payees and endorsements on returned checks with the cash disbursements record.
c. Determine that the year end deposit in transit was credited by the bank on the first working day of
the following accounting period.

2. An auditor would consider a cashier’s job description to contain compatible duties if the cashier
receives remittances from the mail room and also prepares the

Daily deposit slip. Preparing the bank deposit slip is a part of the custodial function, which is the primary
responsibility of a cashier. The cashier is an assistant to the CFO and thus performs an asset custody
function. The preparation of a bank deposit slip is an integral part of the custodial function, along with the
depositing of remittances daily at a local bank.

3. An interbank transfer schedule

Helps the auditor test for kiting.

Review subsequent bank statements and canceled checks received directly from the bank.