ExpertHard1 markMultiple Choice
CPA · Question 52 · Area III: Performing Procedures
Scenario: An auditor is auditing the cash account of a nonissuer. The auditor suspects that the controller is writing checks to pay vendors but holding them in her desk to manage cash flow, while recording them as paid to reduce accounts payable. <br/><br/>Which audit procedure would BEST detect this 'held check' scheme?
Scenario: An auditor is auditing the cash account of a nonissuer. The auditor suspects that the controller is writing checks to pay vendors but holding them in her desk to manage cash flow, while recording them as paid to reduce accounts payable. <br/><br/>Which audit procedure would BEST detect this 'held check' scheme?
Answer options:
A.
Confirming the bank balance with the financial institution.
B.
Counting the petty cash fund.
C.
Vouching the dates on the bank cutoff statement to the dates in the cash disbursements journal.
D.
Reconciling the accounts payable subsidiary ledger to the general ledger.
How to approach this question
Held checks = Recorded but not mailed. They won't clear the bank quickly. Look at the Cutoff Statement.
Full Answer
C.Vouching the dates on the bank cutoff statement to the dates in the cash disbursements journal.✓ Correct
Vouching the dates on the bank cutoff statement to the dates in the cash disbursements journal.
Held checks are recorded in the books (reducing liability and cash) but not mailed. They will appear as outstanding checks. The auditor should review the bank cutoff statement. If checks recorded near year-end don't clear reasonably quickly in the subsequent period, they might have been held.
Common mistakes
Thinking bank confirmation detects this (it confirms the bank balance, not the outstanding list validity).
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