Question

On the last day of the fiscal year, the cash disbursements clerk drew a company check on bank A and deposited the check in the company account in bank B to cover a previous theft of cash. the disbursement has NOT been recorded. the auditor will best detect this form of kiting by:

Answer 1

The auditor can best detect kiting by performing a bank reconciliation and comparing the company's cash records with the bank statement. They should look for any discrepancies, such as a check drawn on one bank to cover a theft not being recorded in the cash disbursement records.

Step-by-step explanation:

The auditor can best detect this form of kiting by performing a bank reconciliation. A bank reconciliation compares the company's cash records with the bank statement to identify any discrepancies. In this case, the auditor would notice that the check drawn on bank A to cover the theft has not been recorded in the company's cash disbursement records. For example, let's say the company's records show a check for $1,000 to cover the theft, but the bank statement does not include this transaction. This would indicate that the check has not been recorded in the company's books, suggesting potential kiting. Besides bank reconciliation, auditors can also use other techniques like reviewing canceled checks, comparing depositor names, and analyzing cash disbursement patterns to detect kiting.