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CS Professional · Internal and Forensic Audit · Internal Audit of Specific Functions

An internal auditor reviewing the cash management of Himalaya Pharma Ltd wants to detect possible lapping of receivables by a cashier. Which technique is most effective?

Comparing cash book receipt dates with bank credit dates and individual customer ledger postings is most effective. Lapping shows up as delayed or mismatched credits to customer accounts, because later receipts are used to cover earlier stolen ones. Other listed procedures do not examine receipt timing.

  1. AComparing the date of receipt entries in the cash book with the dates of credit in the bank statement and the customer ledger postings for individual customersCorrect
  2. BRecomputing annual depreciation on fixed assets
  3. CReviewing the board minutes on dividend policy
  4. DChecking the arithmetic of the trial balance

Explanation

Lapping involves using later receipts from one customer to cover earlier misappropriated receipts from another. Matching receipt dates, bank credit dates and customer ledger postings customer by customer reveals delayed or mismatched credits. The other options do not test receipt timing.

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