Auditing and Reconciliation Flashcards

During a monthly bank reconciliation, a revenue control technician notices that a deposit recorded in the company's cash book on the last day of the month does not appear on the bank statement. Which of the following is the most likely cause of this discrepancy?

Answer: An outstanding deposit (deposit in transit)

This is a classic timing difference. A deposit in transit is a payment that has been recorded by the company in its cash book but has not yet been processed by the bank by the end of the accounting period. It is a common reconciling item.

A revenue audit of a hotel's front desk operations reveals that the same employee who checks guests in and collects cash payments is also responsible for preparing the daily cash deposit and reconciling the daily sales report. This situation indicates a significant weakness in which of the following areas?

Answer: Segregation of duties

Segregation of duties is a fundamental internal control principle aimed at preventing fraud and error. In this scenario, one individual has control over multiple phases of a transaction (custody of assets, recording, and reconciliation), which creates an opportunity for misappropriation of funds to go undetected.

Which of the following is the primary purpose of performing a sales cutoff test during a revenue audit?

Answer: To ensure that revenues are recorded in the correct accounting period.

A sales cutoff test is a substantive audit procedure designed to verify that transactions around the period-end are recorded in the proper period. This ensures that revenue is not recognized prematurely (overstating revenue for the current period) or delayed (understating revenue).

A technician is reconciling the accounts receivable subsidiary ledger to the general ledger control account and finds the subsidiary ledger total is lower than the general ledger balance. Which of the following errors would most likely cause this specific discrepancy?

Answer: A sales invoice was recorded in the general ledger but was not posted to the customer's account in the subsidiary ledger.

If a sales invoice increases the total accounts receivable in the general ledger but is not added to the specific customer's balance in the subsidiary ledger, the general ledger total will be higher than the sum of the individual accounts in the subsidiary ledger.

When auditing cash receipts, the procedure of tracing a sample of recorded cash receipts from the cash receipts journal to the bank statement is performed to test which of the following assertions?

Answer: Existence/Occurrence

Tracing from the company's records (the journal) to an external source (the bank statement) provides evidence that the recorded transaction actually occurred and the cash exists. This directly tests the existence assertion for cash and the occurrence assertion for the revenue transaction.

During a reconciliation of a company's revenue, a technician is comparing the total cash deposited per the bank statements against the total sales recorded in the point-of-sale (POS) system for the month. This reconciliation primarily serves as what type of control?

Answer: Detective control

Detective controls are designed to find errors or irregularities after they have occurred. Reconciling two different data sources, like bank deposits and POS sales records, is a classic detective control procedure used to identify discrepancies that could indicate issues like un-deposited cash, theft, or data entry errors.