Skip to content

CMA Intermediate · Corporate Accounting and Auditing · Audit of Various Items of Financial Statements

During audit, the auditor finds that a bank reconciliation statement of a company includes a cheque issued in March that was shown as unpresented, but the bank statement shows it cleared on 4 April. Which concern is most relevant?

The main concern is window dressing. If a cheque recorded in March was actually released after year-end, liabilities and bank balances are misstated at the balance sheet date. The auditor should check dispatch evidence and subsequent clearing on 4 April to determine the true date of payment.

  1. AThe cheque is a stale cheque and must be written back
  2. BWindow dressing or inflation of year-end bank balance may exist if the cheque was actually released after year-endCorrect
  3. CThe bank has made an error that must be reported to RBI
  4. DThe cheque amount should be treated as contingent liability

Explanation

Cheques recorded in the cash book at year-end but released after the balance sheet date overstate payments reduced from cash only on paper and understate creditors-and-cash correctly timed; this is a window dressing indicator. The auditor checks dispatch dates and clearing. A cheque cleared in days is not stale, and it is not a contingent liability.

Did you get it right without looking?

One question tells you little. A timed set on Audit of Various Items of Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise Audit of Various Items of Financial StatementsFree diagnostic mock

More Audit of Various Items of Financial Statements questions