An auditor should trace bank transfers for the last part of the audit period and first part of the subsequent period to detect whether:

Question

Quizplus · Accepted Answer

Choice "C" is correct. An auditor should trace bank transfers for the last part of the audit period and first part of the subsequent period (bank transfer test) to detect whether cash balances were overstated because of kiting (concealing a cash shortage by depositing in one bank an unrecorded check of another disbursement bank, effectively recording the same funds in both bank accounts). Choice "A" is incorrect. If the cash receipts journal were held open for a few days after the year-end, cash receipts from the subsequent year would be erroneously included in the current year's accounting records. A bank transfer test is not typically used to detect this situation. Choice "B" is incorrect. If the last checks recorded before the year-end were actually mailed by the yearend, appropriate cut-off has occurred. Bank transfer tests would not be required to evaluate this situation. Choice "D" is incorrect. A bank transfer test is not generally used to detect unusual payments to or receipts from related parties.

An Auditor Should Trace Bank Transfers for the Last Part