Question

When the auditor believes the year end bank reconciliation may be intentionally misstated, it is appropriate to perform extended tests of the year-end bank reconciliation. Assuming the client has a October 31 year end, these extended tests would not include:

Answer 1

Extended tests of year-end bank reconciliation verify the statement's accuracy and do not include projecting future cash flows, which is unrelated to past statement verification.

Step-by-step explanation:

When the auditor suspects that the year-end bank reconciliation may be intentionally misstated, it is appropriate to perform extended tests. These tests aim to verify the accuracy and completeness of the bank reconciliation statement and typically include confirming balances directly with the bank, examining reconciling items for subsequent clearance, and testing bank transactions around year-end. However, what would not be included in these extended tests would be projecting the client’s future cash flows. Projecting future cash flows is more relevant to valuation and impairment tests and is not a part of the process for verifying the bank reconciliation statement for the past period ending October 31.