On receiving a client's bank cutoff statement, an auditor most likely would trace:

a. Deposits in transit listed in the cutoff statement to the year-end bank reconciliation.

b. Prior-year checks listed in the cutoff statement to the year-end outstanding checklist.

c. Checks dated after year-end listed in the cutoff statement to the year-end outstanding checklist.

d. Deposits recorded in the cash receipts journal after year-end to the cutoff statement.

Explanation

Choice "b" is correct. The auditor should obtain bank cutoff statements that include transactions for 10 to 15 days after year-end. The outstanding checks and deposits in transit at year-end on the bank reconciliation should agree with the information in the bank cutoff statement.

Choice "a" is incorrect. Companies may have a tendency to overstate their cash balance. A company that is trying to improve its balance sheet will have a tendency to accelerate recording of deposits, so a deposit that wasn't really made until January might be erroneously listed as a deposit in transit at year-end. Tracing deposits from the cutoff statement to the year-end bank reconciliation won't identify this error, since there is no mention in this option of identifying the actual dates the deposits were made.

Choice "c" is incorrect. Checks dated after year-end would not be included in the year-end outstanding checklist.

Choice "d" is incorrect. Deposits recorded in the cash receipts journal after year-end do not affect the cash balance at year-end, and therefore the auditor would not perform audit procedures with respect to those deposits.