1. The auditor obtains a bank cutoff statement for a short period of time subsequent to year-end as a basis for testing the client’s year-end bank reconciliation. However, during the testing, the auditor notes that very few of the outstanding checks have cleared the bank. The most likely cause for this is that the client: • Is engaged in a kiting scheme • Was involved in a lapping scheme • Prepared checks to pay vendors but did not mail them until wee after year –end • Overstated the year-end cash balance to increase the working capital ratio

1.      The auditor obtains a bank cutoff statement for a short period of time subsequent to year-end as a basis for testing the client’s year-end bank reconciliation. However, during the testing, the auditor notes that very few of the outstanding checks have cleared the bank. The most likely cause for this is that the client:

·        Is engaged in a kiting scheme

·        Was involved in a lapping scheme

·        Prepared checks to pay vendors but did not mail them until wee after year –end

·        Overstated the year-end cash balance to increase the working capital ratio

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