Audit and Assurance Practice Exam

What does 'skimming' refer to in an auditing context?

1. Recording false transactions

2. Removing cash before it is recorded

3. Misrepresenting asset values

4. Overstating revenue numbers

The correct answer is: Removing cash before it is recorded

In an auditing context, 'skimming' specifically refers to the act of removing cash before it is recorded in the accounting system. This fraudulent practice occurs when an individual takes money from sales or other sources and fails to report it in order to avoid detection and maintain the illusion of legitimate financial activity. Skimming is particularly insidious because it directly impacts the cash flow of the business without leaving obvious traces in the official financial records. As a result, the discrepancies can be difficult to identify without careful examination of cash activities and revenue reporting. This method of theft allows the perpetrator to evade detection for longer periods, making it a significant concern for auditors tasked with ensuring the integrity of financial statements. The other options presented involve different forms of financial misconduct. Recording false transactions, misrepresenting asset values, and overstating revenue numbers are also serious issues in auditing but do not align with the definition of skimming, which specifically focuses on the unauthorized removal of cash before it appears in the records.