In the audit of a client's financial statements, the auditors must be concerned with the possibility that client personnel might be engaged in kiting or lapping.a. Define lapping and describe an audit procedure that might detect lapping.b. Define kiting and describe an audit procedure that might detect kiting.
What will be an ideal response?
a. Lapping is the concealment of a cash shortage by delaying the recording of cash receipts. It involves posting receipts to the wrong account. Procedures for detecting lapping include (only one required):
Details of cash receipts may be compared to postings to the accounts receivable subsidiary records, preferably on a surprise basis.
Confirmation of accounts receivable.
b. Kiting is manipulation causing an amount of cash to be included simultaneously in the balance of two or more bank accounts.
To detect kiting, the auditors prepare and verify a schedule of bank transfers.
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