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To perform the cut-off test on sales, we normally start with the delivery notes . However, if the company has not issued any delivery notes, shall we select samples from the sales invoices and then trace back to the sales ledger for the cut-off test. In view of these defects in the sales system, what risk reponse shall we make?
Well, tracing from invoices to sales ledger won’t help a great deal with cutoff as these should be consistent. There are two aspects about cut-off:
1 Did the sale occur in the financial period? So, look at orders and any despatch information that is available.
2 Is the inventory consistent with the sales ie do not include an item in closing inventory and in sales. Again, physical despatch is important in deciding whether the item was or was not in inventory at period end. In the absence of dates despatch notes there might be difficulty but the company must keep some sort of records of what was sent to customers and when otherwise what’s to prevent orders being fulfilled twice or how do company’s deal with despatch queries?
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