Which of the following discovered by the auditor would be a weakness in the client’s internal control over its investments?

The following questions concern auditing year-end cash and financial instruments. Choose the best response.
a. Which of the following controls would most likely detect a kiting scheme?
(1) Preparing a bank reconciliation
(2) Using a lockbox system for customer receipts
(3) Comparing the details of deposit tickets and recorded remittance advices
(4) Preparing a bank transfer schedule
b. All of the following are effective ways to prevent and/or detect lapping, except for
(1) comparing the dollar amounts and dates on the bank deposit slips with customer
remittance credits entered into the accounts receivable ledger.
(2) preparing a bank transfer schedule.
(3) requiring that customers send their payments directly to a lockbox.
(4) independently comparing the recorded cash receipts with funds actually depos-
ited in the bank.
c. Which of the following discovered by the auditor would be a weakness in the client’s
internal control over its investments?
(1) The internal auditor performs a periodic count of the actual securities and recon-
ciles the securities counted to the investment subsidiary ledger.
(2) Investments not held by an independent third-party custodian are kept in the
Treasurer’s office.
(3) A designated accounting individual that has no custody or authorization respon-
sibilities maintains the detailed records of the investment subsidiary ledger.
(4) The client’s board of directors authorizes all purchases and sales of investment
securities.

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