Auditing Problems

Quiz
June 26, 2014
1. In the audit of West, Inc., for the year ended December 31, you discover that the client had been drawing checks
as creditors invoices become due but had not been mailing the checks immediately. Because of a working
capital shortage, some checks have been held for two or three weeks.
The clients controller informs you that unmailed checks totaling P48,500 were on hand at December 31 of the
current year. He states that these December-dated checks had been entered in the cash disbursement journal
and charged to the respective creditors accounts in December because the checks were prenumbered.
However, these checks were not actually mailed until early January. The controller wants to adjust the cash
balance and accounts payable at December 31 by P48,500 because the Cash account had a credit balance. He
objects to submitting to his bank your audit report showing an overdraft of cash.
Discuss the propriety of adjusting the cash balance and accounts payable by the indicated amount of
outstanding checks.
2. When auditors are verifying a clients bank reconciliation, they are particularly concerned with the possibility
that the list of outstanding checks may include a nonexistent or fictitious check, and also are concerned with the
possibility of omission from the reconciliation of a deposit in transit. Criticize the above quotation and revise it
into an accurate statement.