Final answer:
An audit procedure comparing remittance advices, cash receipts journal entries, and duplicate deposit slips is effective in detecting lapping by ensuring financial transactions are recorded accurately and legitimate.
Step-by-step explanation:
An audit procedure that compares the name, amount, and dates shown on remittance advices with cash receipts journal entries and with related duplicate deposit slips would be particularly effective in detecting lapping. Lapping is a fraudulent activity where a company employee steals cash receipts and covers up the theft by using subsequent cash receipts to reconcile the accounts. The illicit action may continue as new receipts are continually used to cover the theft.
Comparing remittance advices with cash receipts journal entries ensures that payments received are recorded correctly and in a timely manner. By also matching these with the duplicate deposit slips, the auditor can verify that the cash has actually been deposited into the bank. This procedure will reveal any discrepancies arising from manipulation of the cash receipts, which is indicative of lapping.
This auditing process is important for maintaining the integrity of a company's financial statements. Consistent reconciliation helps in ensuring that assets reflected on the balance sheet are not overstated due to untoward activities like lapping. It also helps maintain the accuracy of bank capital, ensuring that financial reports truly represent a company's net worth and liquidity status.