Question

An audit procedure that compares the name, amount, and dates shown on remittance advices, either paper of electronic via direct deposit, with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting:

A) kiting.
B) lapping.
C) illicit write-offs of customers as uncollectible accounts.
D) sales without proper credit authorization.

Answer 1

The audit procedure described would be most effective in detecting lapping, as it involves checking the consistency of remittance advices with corresponding entries in the cash receipts journal and deposit slips.

Step-by-step explanation:

The audit procedure comparing names, amounts, and dates on remittance advices with cash receipts journal entries and duplicate deposit slips would be most effective in detecting lapping. Lapping is a fraudulent activity where funds being paid by one customer are delayed and instead used to cover payments from another customer, leading to discrepancies in the timing and amount of cash receipts. By closely examining the details and timing on related documents, an auditor can identify inconsistencies that may indicate the occurrence of lapping. It would not be specifically designed to detect kiting, illicit write-offs, or unauthorized sales, although controls over those areas might also be part of a comprehensive audit program.