Question

Explain why you agree or disagree with the statement “In most audits, it is more important to test carefully the cutoff for sales than for cash receipts.” Describe how you perform each test assuming pre-numbered documents are used.

Answer 1

I agree with the given statement as in most audits, it is much more important to test carefully the cutoffs for sales than the cash receipts because the accounting method followed is the accrual basis. Therefore it is important to record the sales that belong to a particular accounting year and hence it is important to keep in mind the cut off date of the sales.

The auditor can keep in mind the date of the document to regulate the cut off of the ales so that the particular sale which relates to a particular accounting year falls under the particular accounting year only.