Chapter 6 - Fraud and the Audit of Cash Flashcards
fraud is…
the act of knowingly making MMs of the intent of fooling someone else
employee fraud is…
the use of fraudulent means to take money or other property from an employer
three stages of employee fraud
- the fraudulent act
- the conversion
- the coverup
embezzlement is..
the act of employees or non employees wrongfully taking money or other property that they were entrusted to
three parts of the fraud triangle
- rationalization
- opportunity
- motivation
economic motive
actual or perceived need for money
psychotic motive
“habitual crime” stealing for the sake of stealing
egocentric motive
committing crime for personal prestige
ideological motive
cause is material superior justified in making others victims
three possible opportunities
- weak ICs
- circumvention of ICs
- the greater the position, the greater the trust and exposure to unprotected assets
a strong control environment is started by the…
tone at the top
being aware of exceptions means being…
skeptical and following up
reports, data, and files used to audit the cash account
- cash recipes journal
- cash disbursements journal
- bank reconciliations
- canceled checks
- bank statements
when do you prepare remittance listing?
after receiving cash and remittance advice in the mail
what do you enter in cash receipts journal when receiving a payment?
total form remittance listing
record update to susidary amounts using…
remittance advice
reconcile _______ daily
remittance listing, subsidiary AR, and deposit slip
significant relevant assertions of cash
- existence
- valuation
- presentation and disclosure
cash is….
highly liquid, easily transportable, and not easily identifiable
the more liquid, the ____ for fraud
easier
three examples of strong ICs for cash
- dual custody for cash at all times
- lockbox arrangement
- fidelity bonds
voucher packets are matched to…
prior year cash disbursement authorization
deposits are reconciled to…
amounts credited to AR ledger
(IC) cash receipts are deposited intact and daily, what are the tests of control?
Observe the opening of mail
(IC) deposits are recognized with totals posted to the AR
for a sample of daily postings to the accounts receivable subsidiary, trace the amount to the amount of cash subsidiary ledger
two cash receipts test of controls
- cash receipts are deposited intact and daily
- deposits are reconciled with totals posted to the AR
three test of controls over cash disbursements
- checks are not printed until vouched packets are prepared; employee compares amounts of packets to printed checks
- checks are prenumbered and accounted for
- bank reconciliations are prepared on a timely basis
checks should be _____ and _____
prenaumbered and accounted for
checks are not printed until…
you receive the voucher packet
the amounts on the printed checks should be compared to…
voucher packets
YE bank statement is in what month?
month of year end (December)
cutoff bank statements are in what month?
month after YE (January)
book balance =
bank balance + deposits in transit - outstanding checks
in auditing balance per bank, you confirm…
standard bank confirmation with the bank
in auditing balance per bank, you agree amount to…
cutoff bank statement
when adding deposits in transit, trace to…
cash receipts journal
when adding deposits in transit, vouch to..
cutoff bank statement
when subtracting outstanding checks, we vouch to…
cash disbursements journal
when subtracting outstanding checks, we trace…
checks cleared from cutoff bank statement
in balance per books, we foot…
the entire reconciliation for mathematical history
in balance per books, we trace…
the amount to the trial balance
creating a “tight” control system may be an issue because…
it is a short term solution to a large problem
business activity is based on…
trust that all employees will do their jobs properly
often an indication of fruad is identifying a…
control violation
