Problem - Blue River Faith Company has a major branch located in Miami. The branch deposits cash receipts daily into the bank and periodically transfers the receipts to the company's home office in Orlando. The transfers are accounted for as inter-company entries into the home office and branch office accounts. All accounting, however, is performed at the home office under the direction of the assistant controller. The assistant controller is also responsible for the transfers. The controller, however, independently reconciles the bank account each month or assigns this reconciliation to someone in the department. Often times the assistant controller is assigned this duty. The company is relatively small; therefore the controller is also the financial planner and treasurer for the company. As part of the year-end audit, you are assigned the task of conducting an audit of bank transfers. As part of the process, you are provided the following schedule of transfers:
Date Disbursement Amount Date Deposit Date cleared Date Cleared
Per Branch Home Office home office per branch statement
12-29-2011 $80,000 12-31-2011 12-31-2011 01-07-2012
01-02-2012 $41,000 12-31-2011 12-31-2011 01-05-2012
01-05-2012 $82,000 01-03-2012 01-07-2012 01-12-2012
12-31-2011 $54,000 01-02-2012 01-03-2012 01-08-2012
01-03-2012 $11,000 01-03-2012 12-31-2011 01-05-2012
12-27-2011 $32,000 12-31-2011 12-31-2011 01-03-2012
Required:
1) Briefly explain the audit objective in obtaining the bank transfer data above which you will use to prepare the Bank Transfer Schedule that reflects the correct information.
2) Identify the audit procedures that would be used to test the correctness of the client's bank transfers. Keep in mind the purpose (cutoff) of the schedule or tests.
3) Identify any adjusting journal entries that would be needed on either the home office or branch office accounting records as a result of the preceding transactions.
4) Indicate how each of the above transactions would be reflected on the December 31, 2011 bank statements of both the home office and the branch office.
5) Indicate which transactions require no adjustment. Indicate which transactions indicate kiting. Indicate which transactions represent errors in cash classification but not in dollar amount for the consolidated/combined cash for the overall company as a whole.