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CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

While auditing Kaveri Textiles Ltd, the auditor wants evidence that all goods dispatched before the year-end have been recorded as sales in that year, and not in the next year. Which audit procedure is most directly aimed at this cut-off assertion?

The best procedure is comparing dispatch records around the year-end with the dates of the related sales invoices and ledger entries. This shows whether goods sent before the year-end were recorded as sales in the same period, which is exactly what the cut-off assertion requires.

  1. AComparing a sample of dispatch records (goods dispatched notes) around the year-end with the dates of the related sales invoices and ledger entriesCorrect
  2. BVouching a sample of sales invoices from the sales ledger back to customer purchase orders
  3. CSending positive confirmation requests to customers with large balances
  4. DAnalysing the gross profit ratio of the current year against the previous year

Explanation

Cut-off for sales is tested by tracing documents dated near the year-end (dispatch records) to the ledger and checking the period of recording. Vouching invoices back to purchase orders mainly tests occurrence. Confirmations test existence of receivables, and ratio analysis is only a general analytical procedure that does not directly test cut-off.

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