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CMA Intermediate · Corporate Accounting and Auditing · Audit of Various Items of Financial Statements

Which procedure is most effective for detecting cut-off errors in revenue at the year-end?

The most effective procedure is comparing the last dispatch notes before year-end and the first after year-end with the sales entries recorded. This confirms that revenue is booked in the period when control passed, which is the essence of cut-off testing.

  1. AComparing the last few dispatch notes before and first few after year-end with the sales recorded in the relevant periodCorrect
  2. BRecomputing depreciation on fixed assets
  3. CConfirming bank balances with the bank
  4. DReviewing the minutes of the annual general meeting

Explanation

Cut-off testing matches dispatch or delivery documents near the year-end to the period in which the related sales invoices were recorded. This detects sales booked in the wrong period. The other procedures relate to other assertions.

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