An auditor is testing the design effectiveness of a client's bank reconciliation control. Which of the following observations would indicate a design deficiency?

Answer options:

The bank reconciliation is reviewed by the controller.

The bank reconciliation is performed by the cashier who also handles cash receipts.

The bank statement is received directly by the internal auditor.

Differences are investigated within 24 hours.

How to approach this question

Look for Segregation of Duties conflicts. Custody (Cashier) vs Reconciliation (Bank Rec).

Full Answer

B.The bank reconciliation is performed by the cashier who also handles cash receipts.✓ Correct

The bank reconciliation is performed by the cashier who also handles cash receipts.

The cashier has custody of cash assets. If the cashier also performs the reconciliation (record keeping/verification), they could steal cash and cover it up by manipulating the reconciliation. This is a design deficiency in segregation of duties.

Common mistakes

Assuming the cashier is the right person to reconcile because they know the transactions.

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