CPA Exam Blogger Philip: Kiting, It’s All Up In The Air!

Philip is a resident of the great state of New York, but has inspired and motivated fellow Roger students through online forums and social media platforms across the globe. Philip has already passed FAR.

Here we are again, discussing one of my favorite things the CPA Exam.  Granted, Im more going to focus on the AUD exam, but still, its fun stuff.  You know you really are into this whole CPA thing when your three year old daughter walks around the house saying that you have to BRAINSTORM to plan an audit.  I love it.

So today, I actually want to talk about one of my favorite window dressing techniques, that as a manager of accounting operations, I would never practice.  Seriously, kiting is a technique whereby the clever manager and accountants create a false picture of their cash account by overstating the cash balance.  Basically, there’s a lag between the time you deposit the cash into an account, and when the cash in the original account is disbursed.  So in essence, the clever manager can deposit cash into another company owned account before year end, and allow the disbursement from the original account to catch up after the fiscal year end.

But the honest auditor in all of us needs to establish audit procedures to catch these transactions.  Its actually quite simple.  We use an inter-company bank transfer schedule whereby we look at each account and the dates of when the funds were disbursed out of the account and when they were received by new account.  At its most basic theory, if the date of disbursement is in the subsequent year, while the date of receipt is in the year under audit, then you have kiting.

This is how I keep this concept as simple as I can.  I hope this helps as you study and review the MCQs.  Remember, if you study, you will pass.

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