Which of the following internal control activities most likely would deter lapping of collections from customers?

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BlackTom AI · Accepted Answer

In auditing internal controls for cash receipts, the goal is to prevent and detect misappropriation such as lapping, where receipts are misapplied to conceal shortages. 
Option 1: Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries. This control helps detect discrepancies between cash receipts and recorded totals, providing a monitoring mechanism, but it does not inherently prevent the thief from handling cash and posting to AR in a coordinated way. It’s more of a detecting control than a preventive separation of duties. 
Option 2: Separation of duties between receiving cash and posting the accounts receivable ledger. This directly reduces lapping risk because the person who takes cash is not the same person who records or updates customer accounts. It creates an interlock that makes concealment harder, because cash handling and ledger posting are performed by different individuals. This is a classical preventive control for lapping. 
Option 3: Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries. Verifying that dates align can catch mismatches and potential timing gaps, but it does not stop the actual theft of cash or the misposting of receipts to the AR ledger. It detects timing anomalies rather than preventing the separation of cash custody from recording. 
Option 4: Authorization of write-offs of uncollectible accounts by a supervisor independent of credit approval. This control strengthens impairment decisions and reduces abuse in write-offs, but it has little to do with lapping, which involves manipulating cash receipts and postings rather than decisions about uncollectible accounts. 
Thus, option 2 is the one that most effectively deters lapping by enforcing an appropriate separation of duties between cash custody and ledger posting, thereby reducing the opportunity for one person to conceal misappropriations across both handling cash and updating records.

ACG442_A_2025SPRING Auditing Ch07 Practice Quiz

Which of the following internal control activities most likely would deter lapping of collections from customers?

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