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
A) examining the composition of deposits in both bank A and bank B subsequent to year-end.
B) examining paid checks returned with the bank statement of the next account period after year-end.
C) preparing, from the cash disbursements records, a summary of bank transfers for one week prior to and subsequent to year-end.
D) comparing the detail of cash receipts as shown by the client's cash receipts records with the detail on the confirmed duplicate deposit tickets for three days prior to and subsequent to year-end.

Question

Quizplus · Accepted Answer

Examining paid checks returned with the bank statement of the next account period after year-end is the best way to detect kiting. This is because the disbursement was made on the last day of the fiscal year and would not have cleared in time for the year-end bank balances. By examining the paid checks returned with the subsequent bank statement, the auditor can identify any checks that were drawn on one bank and deposited in another, which is indicative of kiting. The other choices do not specifically address the detection of kiting.

On the Last Day of the Fiscal Year, the Cash