CHAPTER 10 Auditing Cash and Marketable Securities

25
Bank confirmation
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.
Bank transfer schedule
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.
Collateral
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.
Commercial paper
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.
Cutoff bank statement
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 clients year-end bank reconciliation.
Imprest bank account
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.
Kiting
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.
Lapping
This type of fraud occurs when an employee steals a payment from
one 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 Xs account. Before Customer Y
has time to notice that its account has not been appropriately credited,

CHAPTER 10 Auditing Cash and Marketable Securities

26
the employee applies a payment from Customer Z to Customer Ys
account.
Lockbox
A cash management arrangement with a bank whereby an
organizations customers send payments directly to a post office box
number accessible to the clients bank; the bank opens the cash
remittances and directly deposits the money in the clients account.
Marketable security
A security that is readily marketable and held by the company as an
investment.
Skimming
This type of fraud occurs when an employee makes a sale but does
not record it, and steals the cash.
Turnaround document
A document sent to the customer to be returned with the customers
remittance; may be machine-readable and may contain information to
improve the efficiency of receipt processing.