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The following are misstatements that might be found in the client's year-end cash balance (assume that
the balance sheet date is June 30):

The outstanding checks on the June 30 bank reconciliation were underfooted by $2,000.

A loan from the bank on June 26 was credited directly to the client's bank account. The loan was not
entered as of June 30.

A check was omitted from the outstanding checklist on the June 30 bank reconciliation. It cleared the
bank on July 7.

A check was omitted from the outstanding checklist on the bank reconciliation. It cleared the bank on
September 6.

Cash receipts collected on accounts receivable from July 1 to July 5 were included as June 29 and 30
cash receipts.

A bank transfer recorded in the accounting records on July 1 was included as a deposit in transit on June
30.

A check that was dated June 26 and disbursed in June was not recorded in the cash disbursements
journal, but it was included as an outstanding check on June 30.

List an audit procedure that can be used to discover each misstatement.

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An audit procedure that can be used to discover the frauds mentioned is a bank reconciliation. By
comparing the client's cash balance in the accounting records to the cash balance in the bank statement,
discrepancies and misstatements can be identified. Some specific examples of frauds discovered
through bank reconciliation are underfooting of outstanding checks, omitted checks from the
outstanding checklist, and incorrect inclusion of cash receipts or bank transfers.

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To uncover misstatements in a client's cash balance, auditors should perform specific procedures such
as bank reconciliations, detailed reviews of bank statements, and comparisons with accounting records.
These actions will help detect discrepancies like omitted checks, unrecorded loans, and misclassified
cash receipts. Thorough verification of each transaction will allow auditors to ensure the accuracy of the
client's reported cash balance.

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Here are audit procedures to discover each misstatement, based on your provided document:

Outstanding Checks Underfooted by $2,000: Conduct a bank reconciliation, comparing the client's
outstanding checks list with the bank's records to identify discrepancies.

Loan Not Entered: Review the bank statement for June 26 to find the loan transaction. Cross-reference
with the client’s accounting records to ensure it was recorded.

Omitted Check Cleared on July 7: Check the July bank statement for the cleared check that was omitted
from the outstanding checks.

Omitted Check Cleared on September 6: Review the September bank statement to identify the cleared
check omitted from the June 30 reconciliation.

Incorrect Inclusion of Cash Receipts: Analyze cash receipts records and compare them with bank
statements from June 29 to July 5 to find discrepancies.

Bank Transfer Recorded as Deposit in Transit: Verify the bank transfer recorded on July 1 by checking
the June 30 bank reconciliation.

Omitted Check from Cash Disbursements Journal: Compare the cash disbursement journal against the
outstanding checks. Identify the check dated June 26 to ensure it was recorded in the journal.

Elaborate it based on questions

Outstanding Checks Underfooted by $2,000:

Elaboration: The outstanding checks listed on the June 30 bank reconciliation have a calculation error,
totaling $2,000 less than they should.

Audit Procedure:

Detailed Footing and Cross-referencing: Independently re-foot (re-calculate the sum of) the outstanding
checks list. Then, compare each check on the client's list to the bank's records (either physical or online
statements) to verify the amount and payee. This ensures the amounts are accurate and the checks
were actually issued.

Loan Not Entered:

Elaboration: A loan from the bank was directly deposited into the client's account on June 26, but the
client hasn't recorded this loan in their accounting system as of June 30.

Audit Procedure:

Bank Statement Review and Reconciliation: Obtain the bank statement for June. Scrutinize it for any
credits (deposits) that seem unusual or haven't been accounted for. Specifically, look for the loan
amount credited on June 26. If found, trace this deposit to the client's general ledger. If it's missing, it's a
misstatement.

Omitted Check Cleared on July 7:

Elaboration: A check that should have been on the June 30 outstanding checks list was missing. It
cleared the bank shortly after year-end, on July 7.

Audit Procedure:

Subsequent Period Bank Statement Review: Examine the bank statement for the period after June 30
(i.e., July). Look for checks clearing the bank that are dated on or before June 30 but are not on the
client's outstanding check list. The clearing of the check on July 7 should raise a flag.

Omitted Check Cleared on September 6:

Elaboration: Similar to #3, but this check took longer to clear, not showing up until September 6.

Audit Procedure:

Extended Subsequent Period Bank Statement Review: This requires reviewing bank statements for a
more extended period after June 30 (into September). The procedure is the same as #3: look for checks
dated June 30 or earlier that cleared in September but aren't on the June 30 outstanding list. This is a
test for unrecorded liabilities.

Incorrect Inclusion of Cash Receipts:

Elaboration: Cash received from customers between July 1 and July 5 was wrongly recorded as if it was
received on June 29 and 30.

Audit Procedure:

Cutoff Testing of Cash Receipts: Perform a cutoff test. This involves comparing the dates on remittance
advices (or other documentation supporting cash receipts) with the dates the receipts were recorded in
the client's cash receipts journal and deposited per the bank statement. Pay close attention to
transactions around the June 30 year-end. Any receipts deposited in early July but recorded as June
receipts are a misstatement.

Bank Transfer Recorded as Deposit in Transit:

Elaboration: A bank transfer that occurred on July 1 was incorrectly included as a deposit in transit on
June 30.

Audit Procedure:

Verify Deposits in Transit: Examine the June 30 bank reconciliation. For any deposits listed as "in transit,"
trace them to the July bank statement. If the deposit in transit is actually a bank transfer that occurred
on July 1 (as evidenced by the bank statement and transfer documentation), it was incorrectly included
on the June 30 reconciliation.

Omitted Check from Cash Disbursements Journal:

Elaboration: A check dated June 26 was properly disbursed (sent to the payee) but was not recorded in
the client's cash disbursements journal. However, it was included on the outstanding checks list.

Audit Procedure:

Vouching from Outstanding Check List to Cash Disbursements Journal: Take the list of outstanding
checks as of June 30. For each check, vouch (trace) it back to the cash disbursements journal. You should
find supporting documentation for each check. If the check dated June 26 is on the outstanding list but
cannot be found in the cash disbursements journal, it indicates a misstatement.

I hope this elaboration is helpful! Let me know if you have any more questions.

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