B is corrent since a cutoff bank statement will include canceled checks and deposit slips for the period immediately following year-end. The auditor is, therefore, able to test whether the reconciling items at year-end have been handled properly.
A is incorrect because verifying the cash balance reported on the bank confirmation is a secondary objective.
C is incorrect because a cutoff bank statement, by itself, will provide limited assistance in detecting kiting. Kiting is the overstatement of cash by recording a deposit without a corresponding withdrawal at year-end and is best detected through the use of a bank transfer schedule.
D is incorrect because a cutoff bank statement, by itself, will provide limited assistance in detecting lapping. Lapping is an embezzlement scheme in which cash collections from customers are stolen and is detected by the use of confirmations and analytical procedures.
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