An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure is to:
A.
Provide the data necessary to prepare a proof of cash.
B.
Request a cutoff bank statement and related checks be sent to the auditor.
C.
Detect kiting activities that may otherwise not be discovered.
D.
Seek information about contingent liabilities and security agreements.
Suggested Answer:D🗳️
Choice "D" is correct. The standard confirmation request seeks information on contingent liabilities and security agreements in addition to information related to deposit account balances. Choice "A" is incorrect. The standard confirmation request does not provide all of the data necessary to prepare a "proof of cash" (i.e., bank reconciliation), since it only confirms the balances at the end of a period, and does not provided information about the activity during the period under audit. Such information is necessary to perform a bank reconciliation and would be provided in a bank statement. Choice "B" is incorrect. A request for a cut-off statement, and not the standard bank confirmation form, is used to obtain a cut-off bank statement and related checks. Choice "C" is incorrect. The bank cut-off statement, not the standard confirmation request, is used to detect kiting activities that may not otherwise be discovered.
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