An auditor is auditing the cash account of a nonissuer. The auditor suspects that the cashier is misappropriating cash receipts and covering the theft by lapping accounts receivable collections. Which of the following procedures would be MOST effective in detecting this fraud?

Answer options:

Confirming a sample of accounts receivable balances.

Reconciling the bank statement to the general ledger.

Comparing the dates of checks listed on the duplicate deposit slips to the dates the checks were recorded in the cash receipts journal.

Comparing the details (customer name and amount) of the bank deposit slips to the details in the cash receipts journal/remittance advices.

How to approach this question

Lapping = Stealing from Peter to pay Paul. To catch it, check if the money put in the bank (Deposit Slip) matches the name in the book (Journal).

Full Answer

D.Comparing the details (customer name and amount) of the bank deposit slips to the details in the cash receipts journal/remittance advices.✓ Correct

Lapping is detected by comparing the details of the bank deposit slip (who actually paid) with the cash receipts journal (who was given credit). If a check from Smith is credited to Jones' account, lapping is occurring.

Common mistakes

Thinking confirmations catch lapping. They might, but lapping is designed to fool confirmations by keeping balances 'current' using stolen money.

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