4.07 - FIN STATEMENT ACCTS: CASH Flashcards
4.07 - FIN STATEMENT ACCTS: CASH
Based on the following cash transfer schedule, by how much will cash be overstated as a result of kiting?
$3,000 - Per Book | Per Bank
Date of Disburse - 12/31/X1 | 01/05/X2
Date of Receipt - 12/31/X1 | 01/04/X2
$3,500 - Per Book | Per Bank
Date of Disburse - 01/04/X2 | 01/11/X2
Date of Receipt - 12/31/X1 | 01/04/X2
$2,700 - Per Book | Per Bank
Date of Disburse - 12/31/X1 | 01/04/X2 Date of Receipt - 12/31/X1 | 12/31/X1
$4,100 - Per Book | Per Bank
Date of Disburse - 01/4/02 | 01/05/X2
Date of Receipt - 12/31/X1 | 01/04/X2
A) $3,500
B) $13,300
C) $10,300
D) $7,600
D) $7,600
Kiting is a fraud scheme in which transfers are recorded in the account receiving the money in a period earlier than the
period in which the disbursement is recorded.
The date on which the bank recognized the receipt or disbursement is not relevant. The transfers for $3,500 and $4,100 were both disbursed in 20X2 but recognized as received in 20X1 for a total overstatement of $7,600.
4.07 - FIN STATEMENT ACCTS: CASH
The usefulness of the standard bank confirmation request may be limited because the bank employee who
completes the form may
A) Not have access to the client’s cutoff
bank statement.
B) Be unaware of all the financial
relationships that the bank has with the client.
C) Not believe that the bank is obligated to verify confidential information to a third party.
D) Sign and return the form without inspecting the accuracy of the client’s bank reconciliation.
B) Be unaware of all the financial
relationships that the bank has with the client.
A standard bank confirmation is useful as long as it accurately and completely provides the information sought.
It is based on the bank records and does not require inspection of the client’s bank reconciliation or the client’s cutoff bank statement.
Since it is being requested by the client, the bank will respond even though the employee may not believe that the bank is obligated to do so.
If the employee completing the confirmation is not aware of all of the relationships between the client and the
bank, however, it is possible that the confirmation will not be filled out accurately and completely, reducing its usefulness.
