Question

The cashier of Brooke Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the Company's out-of-town bank. How would the auditor discover this manipulation?

A. Confirming all December 31 bank balances
B. Counting the cash working fund at the close of business on December 31
C. Preparing independent bank reconciliations as of December 31
D. Preparing and detail testing a bank transfer schedule

Answer 1

The auditor would discover this manipulation by preparing independent bank reconciliations as of December 31.

Step-by-step explanation:

The auditor would discover this manipulation by preparing independent bank reconciliations as of December 31.

A bank reconciliation is a process used to compare the cash balance in the general ledger to the cash balance reported on the bank statement.

It helps identify any discrepancies or differences between the two balances.

By preparing independent bank reconciliations, the auditor can compare the company's records with the bank's records and identify any discrepancies, such as the unrecorded check cashed to cover the shortage in the cash working fund.

This technique is effective because it allows the auditor to verify the accuracy of cash transactions and identify any potential fraudulent activities or manipulations.