Auditing Theory by Cabrera Answer key: Chapter 20
De Leon, Mary Joy P. #10 January 7, 2014
BSA 3-14
ACCO 3116
Prof. Flora Briones
Chapter 20
SUBSTANTIVE TESTS OF TRANSACTIONS AND BALANCES
1. What is a cutoff bank statement? How is it used by the auditor?
Cut off bank statement is the statement of transactions occurred for the 7 to 14 consequent days from the closing date of financial statement like Dec 31 provided by banks. It is used by the auditors to check the accuracy of checks outstanding and deposits in transit in accounting.
2. Why should all cash funds be counted at the same time?
When cash is transferred from one person to another (even for a short period of time), it should be counted in the presence of both parties. The amount should be recorded on a receipt, and the receipt should be signed by the person accepting custody. This is necessary for the purposes of establishing responsibility relating to a shortage.
3. What is “kiting”? What procedures do auditors use to detect kiting?
Kiting is a form of check fraud, involving taking advantage of the float to make use of non-existent funds in a checking or other bank account. In this way, instead of being used as a negotiable instrument, checks are misused as a form of unauthorized credit. It is commonly defined as intentionally writing a check for a value greater than the account balance from an account in one bank, then writing a check from another account in another bank, also with non-sufficient funds, with the second check serving to cover the non-existent funds from the first account.
Kiting would least be likely detected by comparing customer remittance advices with recorded disbursements in the cash disbursements journal.
4. Distinguish between “positive” and “negative” confirmations. Under what conditions would you expect each type of confirmation to be appropriate?
Positive confirmation is an auditing inquiry that requires the customer to respond to the auditor whether the customer's records do or do not
BSA 3-14
ACCO 3116
Prof. Flora Briones
Chapter 20
SUBSTANTIVE TESTS OF TRANSACTIONS AND BALANCES
1. What is a cutoff bank statement? How is it used by the auditor?
Cut off bank statement is the statement of transactions occurred for the 7 to 14 consequent days from the closing date of financial statement like Dec 31 provided by banks. It is used by the auditors to check the accuracy of checks outstanding and deposits in transit in accounting.
2. Why should all cash funds be counted at the same time?
When cash is transferred from one person to another (even for a short period of time), it should be counted in the presence of both parties. The amount should be recorded on a receipt, and the receipt should be signed by the person accepting custody. This is necessary for the purposes of establishing responsibility relating to a shortage.
3. What is “kiting”? What procedures do auditors use to detect kiting?
Kiting is a form of check fraud, involving taking advantage of the float to make use of non-existent funds in a checking or other bank account. In this way, instead of being used as a negotiable instrument, checks are misused as a form of unauthorized credit. It is commonly defined as intentionally writing a check for a value greater than the account balance from an account in one bank, then writing a check from another account in another bank, also with non-sufficient funds, with the second check serving to cover the non-existent funds from the first account.
Kiting would least be likely detected by comparing customer remittance advices with recorded disbursements in the cash disbursements journal.
4. Distinguish between “positive” and “negative” confirmations. Under what conditions would you expect each type of confirmation to be appropriate?
Positive confirmation is an auditing inquiry that requires the customer to respond to the auditor whether the customer's records do or do not