JAIIB Paper 3 Module A Quiz 8

Inter-office reconciliation verifies that transactions recorded by one office are reflected correctly by the counterpart office. Prompt matching helps identify delays, errors and potential irregularities.

Concurrent audit typically examines transactions on an ongoing basis, while internal audit may cover broader governance, risk management, controls and operational effectiveness. Exact scope depends on the bank’s policies and regulatory requirements.

A detective control identifies errors or suspicious activity after or as they occur. Exception-report review is detective; access controls, maker-checker approval and transaction limits are primarily preventive.

A trial balance checks arithmetic equality, not the full correctness of classification, authorisation or occurrence. Wrong-account postings, complete omissions and some compensating errors may remain undetected.

Suspense items should be investigated and cleared using supporting evidence and proper authorisation. Persistent balances can indicate unresolved errors or control weaknesses and should be escalated.

The business entity concept separates personal and business transactions. Personal purchases paid from business funds are drawings or amounts recoverable from the owner, not business operating expenses.

A credit purchase increases goods/inventory or purchases, and increases accounts payable. Assets (or purchases under a periodic system) and liabilities rise by the transaction amount, keeping the accounting equation balanced.

Revenue recognition follows the applicable standard and generally depends on satisfaction of the relevant performance obligations or other criteria. Cash receipt alone may represent a liability or advance, and an order alone may not justify revenue recognition.

A trade payable is an obligation to pay a supplier and is a liability. Furniture, bank cash and prepaid rent are assets.

The bank has increased the account by ₹600, but the entity has omitted the entry. The cash book bank balance should be increased and interest income credited, subject to the entity’s accounting treatment.

Dishonour means the expected collection did not occur and the bank reverses the credit. The cash book bank balance should be reduced and the customer’s receivable reinstated, where relevant.

For an overdraft, the sign convention must be handled carefully. An unpresented cheque has reduced the cash book balance but has not yet reduced the bank’s balance, so the bank statement overdraft is generally smaller than the cash book overdraft, assuming no other differences.

An error of principle involves an incorrect accounting treatment, such as capital expenditure charged as revenue. An error of commission may involve posting to the wrong account or recording incorrect details; either may leave the trial balance balanced.

If equal incorrect amounts are posted to debit and credit sides, the trial balance may still agree despite the amount being wrong. This is an error of original entry and requires correction.

External confirmation from the bank is generally persuasive evidence, but auditors also evaluate reconciliations, cut-off, restrictions and other relevant information. No single procedure alone necessarily resolves every audit assertion.

An audit trail links transactions to source evidence and records relevant user actions or changes. It supports accountability, troubleshooting, audit and fraud investigation.

Role-based access limits users to the functions needed for their responsibilities. Combined with individual IDs, logging and segregation of duties, it reduces unauthorised access and improves accountability.

Internal controls support reliable financial reporting, safeguarding of assets, operational effectiveness and compliance. Controls reduce risk to an acceptable level but cannot eliminate all risk or guarantee profit.

Accounting often requires estimates for useful lives, expected credit losses, provisions and residual values. Estimates should be reasonable, supportable, reviewed and disclosed when required; uncertainty does not automatically make them improper.

Disclosure of material accounting policies helps users understand recognition and measurement choices and compare financial statements. It does not guarantee market outcomes or remove the need for audit.