Exam 16: Auditing the Financinginvesting Process: Cash and Investments

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There are three tests used for detecting fraud in the cash accounts.The first is extended bank reconciliation procedures.The auditor examines disposition of the reconciling items included on the prior months' reconciliations and the reconciling items included in the current bank reconciliation.These procedures can locate a fraud that used reconciling items to cover a cash defalcation.
A second test is a proof of cash.A proof of cash reconciles the cash receipts and disbursements recorded on the client's books with the cash deposited into and disbursed from the client's bank account for a specific time period.Its primary purpose is to ensure that all cash receipts recorded in the client's cash receipts journal were deposited in the client's bank account,to ensure that all cash disbursements recorded in the cash disbursements journal have cleared the bank account,and to ensure that no bank transactions have been omitted from the client's accounting records.It can detect cash stolen after being recorded on the client's books.
A third test is a test for kiting.Kiting is the process of covering a cash shortage by transferring money from one bank account to another and recording the transactions improperly on the client's books.A test for kiting is completed through the use of an intertransfer schedule that lists all the transfers made between cash accounts.Each transfer is followed through from one account to another,noting the dates recorded on the client's book and the dates on the bank statements.