Question

help please !!

Your firm is the auditor of Trojan Trading Ltd. The audited financial statements for the year ended December 31, 2020, show the company's revenue was $5 million and the profit before tax was $320,000. The part of the working papers that records audit work on the bank reconciliation at December 31, 2020, noted cash receipts of $14,000 recorded in the cash book before the year end that were not credited to the bank statement until a week after year end. No further work was carried out because the amount was not considered - material, and that conclusion was noted in the audit working papers. In February 2021, the company investigated delays in depositing cash receipts and discovered a fraud of $36,000. The fraud was carried out by the cashier who was responsible for depositing all receipts and preparing the bank reconciliation Which of the following apply to this situation? Delays in the banking of cash receipts can indicate a fraud known as lapping. Delays in the banking of cash receipts can indicate a fraud known as kiting, Delays in the banking of cash receipts is known as window dressing A procedure that the auditor could have used to detect the problem identified in this case is confirming accounts receivable on a surprise basis or at an interim date. A procedure that the auditor could have used to detect the problem identified in this case is confirming the cash balance at year end. A procedure that the auditor could have used to detect the problem identified in this case is comparing details of cash receipt journal entries with the details of corresponding daily deposit slips. This is likely to happen when there is a weakness in segregation of duties between receiving and recording collections from customers.

Answer 1

Answer is a procedure that the auditor could have used to detect the problem identified in this case is comparing details of cash receipt journal entries with the detais of corresponding daily deposit slips.

The reason of choosing this option is that this is the case of mismatch of cash receipt recording in bank reconciliation statement. The cashier made a fraud of $36,000 as delays in depositing cash receipts was discovered in 2021. When the auditing was done in the year end in 2020, the auditor discovered that cash receipt of $14000 was not shown in bank reconciliation statement. The auditor must try to detect the problem by comparing details of cash receipts with details of corresponding daily deposit slip as entry was made in the cash book but not shown in the bank reconciliation statement. If the problem was detected in 2020 by auditor, it must not have carried in 2021 and the fraud of $36,000 could be detected easily.