Chapter 10 Auditing Cash And Marketable Securities

Front 1

Bank Confirmation

Back 1

A standard confirmation sent to all banks with which the client had business during the year to obtain information about the year-end cash balance and additional information about loans outstanding.

Front 2

Bank transfer schedule

Back 2

An audit document that lists all transfers between client bank accounts starting a short period before year end and continuing for a short period after year end; its purpose is to assure that cash in transit is not recorded twice.

Front 3

Collateral

Back 3

An asset or a claim on an asset usually held by a borrower or an issuer of a debt instrument to serve as a guarantee for the value of a loan or security. If the borrower fails to pay interest or principal, the collateral is available to the lender as a basis to recover the principal amount of the loan or debt instrument

Front 4

Commercial papaer

Back 4

Notes issued by major corporations, usually for short periods of time and at rates approximating prime lending rates, usually with high credit rating; their quality may change if the financial strength of the issuer declines

Front 5

Cutoff bank statement

Back 5

A bank statement for a period of time determined by the client and the auditor that is shorter than that of the regular month-end statements; sent directly to the auditor, who uses it to verify reconciling items on the client's year-end bank reconciliation.

Front 6

Imprest bank account

Back 6

A bank account that normally carries a zero balance and is replenished by the company when checks are to be written against the account; provides additional control over cash. The most widely used imprest bank account is the payroll account, to which the company makes a deposit equal to the amount of payroll checks issued.

Front 7

Kiting

Back 7

A fraudulent cash scheme to overstate cash assets at year end by showing the same cash in two different bank accounts using an interbank transfer.

Front 8

Lapping

Back 8

This type of fraud occurs when an employee steals a payment from on customer, and covers it up by using payments from another customer to disguise the theft. For example, the employee steals a payment from Customer X. To cover the theft, the employee applies a payment from Customer Y to Customer X's account. Before Customer Y has the time to notice that its account has not been appropriately credited, the employee applies a payment from Customer Z to Customer Y's account.

Front 9

Lockbox

Back 9

A cash management arrangement with a bank whereby an organization's customers send payments directly to a post office box number accessible to the client's bank; the bank opens the cash remittances and directly deposits the money in the client's account.

Front 10

Marketable security

Back 10

A security that is readily marketable and held by the company as an investment.

Front 11

Skimming

Back 11

This type of fraud occurs when an employee makes a sale by does not record it, and steals the cash.

Front 12

Turnaround document

Back 12

A document sent to the customer to be returned with the customer's remittance; may be machine-readable and may contain information to improve the efficiency of receipt processing.