Question

Listed below are types of errors or fraud that might occur in financial statements. Although a number of audit procedures might detect an error or fraud, select the most likely effective audit procedure to each error or fraud item. Replies may be used more than once.

Audit Procedure

a.	Preparing and verifying a schedule of bank transfers.
b.	Tracing remittance advices to postings in the accounts receivable records.
c.	Comparing the serial numbers of securities on hand to numbers recorded in the prior year’s audit working papers.
d.	Review of the bank cutoff statement.
e.	Preparing a "proof of cash" for the entire audit period.
f.	Confirm terms of debt agreements using a debt confirmation request form.
g.	Confirm using public accounting profession's standard form to confirm account balance information with financial institutions.

6	Writing checks prior to year-end, but not mailing them until a week thereafter
7	Omitting an important financial statement disclosure item related to a loan agreement obtained from a nonfinancial institution..
8	Recording short-term outstanding debt (per debt agreement) as long term; debt is due loan agency.
9	Altering the ending balance on the year-end bank statement.
10	Receiving a loan from the company's primary banking institution and not recording the entry, but placing the cash in overseas account not recorded in the company's accounting records.

Answer 1

6.

a.

Preparing and verifying a schedule of bank transfers. Doing so will bring into consideration all those cheques that we have deducted from our books but have not actually been mailed. 7 Confirm using public accounting profession's standard form to confirm account balance information with financial institutions. Doing so will bring forward all details of any loan agreement omitted by mistake or intentionally 8 Confirm terms of debt agreements using a debt confirmation request form. this will result in eternal confirmation which is a solid and reliable source of evidence during audit. 9 Review of the bank cutoff statement. this will provide auditor with verification of end balance of bank account as shown in books 10 Confirm using public accounting profession's standard form to confirm account balance information with financial institutions. & Preparing and verifying a schedule of bank transfers. this will make sure to identify all inter banking transactions and any hidden account balance