Question

23-20 (Objectives 23-3, 23-4) The following are misstatements that might be found in the client’s year-end cash balance (assume that the balance sheet date is June 30):

• 1. The outstanding checks on the June 30 bank reconciliation were underfooted by $2,000.
• 2. A loan from the bank on June 26 was credited directly to the client’s bank account. The loan was not entered as of June 30.
• 3. A check was omitted from the outstanding check list on the June 30 bank reconciliation. It cleared the bank July 7.
• 4. A check was omitted from the outstanding check list on the bank reconciliation. It cleared the bank September 6.
• 5. Cash receipts collected on accounts receivable from July 1 to July 5 were included as June 29 and 30 cash receipts.
• 6. A bank transfer recorded in the accounting records on July 1 was included as a deposit in transit on June 30.
• 7. A check that was dated June 26 and disbursed in June was not recorded in the cash disbursements journal, but it was included as an outstanding check on June 30.

Required

• a. Assuming that each of these misstatements was intentional (fraud), state the most likely motivation of the person responsible.
• b. What control can be instituted for each fraud to reduce the likelihood of occurrence?
• c. List an audit procedure that can be used to discover each fraud.

Answer 1

(A) All the misstatement was done intentionally then is like to person want to fraud with the company, it will lead to low confidence of stakeholders and investors in its finances that lead to the downfall of a company.
The motivation in this scenario is to create a false sense of security for a current and potential investor and its stakeholders.

(B) To eliminate this type of fraud company have to best internal control and segregation of duties among employees of the company it leads to better control and transparency in its financials.
(C) the company have to introduced following auditing procedure to eliminate such types of fraud
Control should be introduced-
1. Accuracy and check on numerical and internal data, numerical sequencing bank reconciliation.
2. Bank record with loan statement should be kept
3. Numerical sequencing of check numbers to see whether every check entered and no mistakes in the record the checks are done
4. Numerical sequencing of check numbers to see whether every check entered and no mistakes in the record the checks are done
5. Cash totals of receipts numerically numbered.
6. total of transfers should be kept and matched with a record
7. numerically serial wise in disbursement book.