An auditor is testing the 'Cutoff' assertion for inventory. Which procedure is most relevant?

Answer options:

Observing the physical inventory count.

Comparing the dates on receiving reports and shipping documents with the dates of recording in the inventory journal around year-end.

Confirming inventory held at outside locations.

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

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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