ExpertMedium1 markMultiple Choice
CPA · Question 69 · Area 3: Performing Procedures
An auditor is testing the 'Cutoff' assertion for inventory. Which procedure is most relevant?
An auditor is testing the 'Cutoff' assertion for inventory. Which procedure is most relevant?
Answer options:
A.
Observing the physical inventory count.
B.
Comparing the dates on receiving reports and shipping documents with the dates of recording in the inventory journal around year-end.
C.
Confirming inventory held at outside locations.
D.
Testing the lower of cost or market.
How to approach this question
Cutoff = Dates. Look for the option comparing dates.
Full Answer
B.Comparing the dates on receiving reports and shipping documents with the dates of recording in the inventory journal around year-end.✓ Correct
Comparing the dates on receiving reports and shipping documents with the dates of recording in the inventory journal around year-end.
Cutoff tests focus on whether transactions occurring near year-end are recorded in the proper accounting period. Matching shipping/receiving dates to journal dates is the primary test.
Common mistakes
Confusing Cutoff with Existence.
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