This test is used to detect kiting.
The auditor checks whether the recording dates for cash disbursement and cash receipt are in the same financial year.
Important rule:
The disbursement and receipt of the same transfer must be recorded in the same fiscal year.
If the receipt is recorded before year-end but the disbursement is recorded after year-end, it may indicate kiting.
Example of Kiting
Assume the company transfers RM10,000 from Account A to Account B.
Before year-end:
- Account B records RM10,000 as received.
- Account A has not yet recorded the deduction.
At 31 December, the accounts show:
| Account | Balance Effect |
|---|---|
| Account A | RM10,000 still shown |
| Account B | RM10,000 added |
| Total shown | RM20,000 |
| Actual cash | RM10,000 |
This means the company appears to have more cash than it actually has.
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