Audit Evidence-Specific Audit Areas

Question 1

What are the Substantive Procedures usually performed in every individual audit area?

Answer 1

1. Agree the financial statement elements (or the trial balance from which the financial statement elements are derived) to the underlying accounting records (i.e., to the general ledger).
2. Scan the entity’s journals and ledgers for any “unusual” items.
3. Make appropriate inquiries of management and other personnel (and document those important inquiries and management’s responses in the management representations letter).
4. Perform specific analytical procedures - consider historical trends and events within the industry.

Question 2

What is kiting?

Answer 2

Kiting happens when a transfer is recorded as the reciept part of the transfer happening in a different period from the disbursement. When testing for kiting look for reciepts being recorded in a different period or the reciept being recorded in a period after it shows up in the bank.

If the disbursement happens before the receipt it’s an error. This understates cash instead of overstating it.

Question 3

what is check Kiting?

Answer 3

Check kiting occurs when cash is fraudulently created through the transfer of money between banks. Insufficient funds checks are written and deposited among a series of banks and the float is used to “create” cash.
Kiting would be evidenced by a low average balance compared to a high level of deposits because, although deposits are being made, checks are immediately written to remove the funds, resulting in a low average balance.