The following questions concern auditing year-end cash and financial instruments. Choose the best response.
a. Which of the following controls would most likely detect a kiting scheme?
(1) Preparing a bank reconciliation
(2) Using a lockbox system for customer receipts
(3) Comparing the details of deposit tickets and recorded remittance advices
(4) Preparing a bank transfer schedule .
b. All of the following are effective ways to prevent and/or detect lapping, except for
(1) Comparing the dollar amounts and dates on the bank deposit slips with customer remittance credits entered into the accounts receivable ledger.
(2) Preparing a bank transfer schedule.
(3) Requiring that customers send their payments directly to a lockbox.
(4) Independently comparing the recorded cash receipts with funds actually deposited in the bank.
c. Which of the following discovered by the auditor would be a weakness in the client’s internal control over its investments?
(1) The internal auditor performs a periodic count of the actual securities and reconciles the securities counted to the investment subsidiary ledger.
(2) Investments not held by an independent third-party custodian are kept in the Treasurer’s office.
(3) A designated accounting individual that has no custody or authorization responsibilities maintains the detailed records of the investment subsidiary ledger.
(4) The client’s board of directors authorizes all purchases and sales of investment securities.
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