Question

As one of the year-end audit procedures, the auditor instructed the client's personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the client's treasurer had signed the request, it was mailed to the bank by the assistant treasurer. What is the major flaw in this audit procedure?

A. The confirmation request was signed by the treasurer
B. Sending the request was meaningless because the account was closed before the year-end
C. The request was mailed by the assistant treasurer
D. The CPA did not sign the confirmation request before it was mailed

Answer 1

The correct option is B. Sending the request was meaningless because the account was closed before the year-end.

The major flaw in this audit procedure is that sending the bank confirmation request for a closed account was meaningless because it provides no relevant information on the year-end status of that account.

Step-by-step explanation:

The major flaw in the audit procedure described is B. Sending the request was meaningless because the account was closed before the year-end. When performing an audit, it is crucial to confirm the existence and status of bank accounts as of the year-end date.

If an account has been closed, a confirmation request does not provide relevant information regarding the current status or balance. Moreover, sending a confirmation for a closed account could potentially waste time and resources, and may not meet the audit objectives. Rather, the auditor should have verified the closure of the account and focused on examining the entity's final transactions and reconciling items up to the closure date.

In the narrative provided about Noel, it illustrates the importance of due diligence and the ability to spot errors. Noel's quick action to notify the relevant parties about the billing error prevented an overpayment, showing how vigilance can avert financial mishaps within a business.