23-20 (OBJECTIVE 23-4) The following are various potential misstatements due to errors or fraud (1 through 7). and a list of auditing procedures ta. through h , the auditor would con- sider performing to gather evidence to determine whether the error or fraud is present. Possible Misstatements Due to Errors or Fraud 1. The auditor suspects that a lapping scheme exists because an accounting department employee who has access to cash receipts also maintains the accounts receivable led- ger and refuses to take any vacation or sick days. 2. The auditor suspects that the entity is inappropriately increasing the cash reported on its balance sheet by drawing a check on one account and not recording it as an second account. outstanding check on that account and simultaneously recording it as a deposit in a 3. The entity's cash receipts of the first few days of the subsequent year were properly deposited in its general operating account after the year-end. However, the auditor suspects that the entity recorded the cash receipts in its books during the last week of the year under audit. 4. The auditor noticed a significant increase in the number of times that petty cash was cash fund. reimbursed during the year and suspects that the custodian is stealing from the petty 5. The auditor suspects that a kiting scheme exists because an accounting department ous lifestyle. employee who can issue and record checks seems to be leading an unusually luxuri- 6. During tests of the reconciliation of the payroll bank account, the auditor notices that a check to an employee is significantly larger than other payroll checks. 7. The auditor suspects that the controller wrote several checks and recorded the cash disbursements just before year-end but did not mail the checks until after the first week of the subsequent year. List of Auditing Procedures a. Compare the details of the cash receipts journal entries with the details of the corre- sponding daily deposit slips. b. Count the balance in petty cash at year-end. C. Agree gross amount on payroll checks to approved hours and pay rates. d. Obtain the cutoff bank statement and compare the cleared checks to the year-end reconciliation. e. Examine invoices, receipts, and other documentation supporting reimbursement of Al petty cash. f. Send a standard bank confirmation confirming the balance in the bank at year-end. g. Examine payroll checks clearing after year-end with the payroll journal. h. Prepare a bank transfer schedule. honor Playeach possible misstatement, identify one audit procedure that would be most effective providing evidence regarding the potential misstatement. Listed auditing procedures may be used once, more than once, or not at all. 23-21 (OBJECTIVE 23-4) You are doing the first-year audit of Sherman School District and