Below are seven potential misstatements due to errors or fraud, preceded by a list of auditing procedures (a. through h.) the auditor could consider performing to gather evidence to determine whether an error or fraud is present.

LIST OF AUDIT PROCEDURES
a. Send a standard bank confirmation confirming the balance in the bank at year-end.
b. Compare the details of the cash receipts journal entries with the details of the corresponding daily deposit slips.
c. Count the balance in petty cash at year-end.
d. Agree gross amount on payroll cheques to approved hours and pay rates.
e. Obtain the cutoff bank statement and compare the cleared cheques to the year-end reconciliation.
f. Examine invoices, receipts, and other documentation supporting reimbursement of petty cash.
g. Examine payroll cheques clearing after year-end with the payroll journal.
h. Prepare a bank transfer schedule.

REQUIRED
For each possible misstatement below, identify one audit procedure that would be most effective in providing evidence regarding the potential misstatement. Listed auditing procedures may be used once, more than once, or not at all.

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Possible Misstatements Due to Errors or Fraud 1. The auditor suspects that a lapping scheme exists because an accounting department employee who has access to cash receipts also maintains the accounts receivable ledger and refuses to take any vacation or sick days. 2. The auditor suspects that the entity is inappropriately increasing the cash reported on its balance sheet by drawing a cheque on one account and not recording it as an outstanding cheque on that account, while simultaneously recording it as a deposit in a second account. 3. The entity's cash receipts of the first few days of the subsequent year were properly deposited in its general operating account after the year-end. However, the auditor suspects that the entity recorded the cash receipts in its books during the last week of the year under audit. 4. The auditor noticed a significant increase in the number of times that petty cash was reimbursed during the year and suspects that the custodian is stealing from the petty cash fund. 5. The auditor suspects that a kiting scheme exists because an account- ing department employee who can issue and record cheques seems to be leading an unusually luxurious lifestyle. 6. During tests of the reconciliation of the payroll bank account, the auditor notices that a cheque to an employee is significantly larger than other payroll cheques. 7. The auditor suspects that the controller wrote several cheques and recorded the cash disbursements just before year-end but did not mail the cheques until after the first week of the subsequent year. Audit Procedure to Provide Evidence (a. to h.)