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- May 1, 2019 at 12:00 pm #514695
Dec 2010
Q3(c)(ii)audit risk and responseAnswer:
“Increased sales cut-off testing will be performed along
with a review of post-year-end sales returns as they
may indicate cut-off errors”why post-year-end sales return indicate cut off error?
Thank you.
May 1, 2019 at 1:59 pm #514711This has to be put into the context of the audit risk that this is addressing. In this question (Redsmith) bonuses are based on sales revenue – so there is a risk that sales might be inflated – e.g. by:
– raising invoices shortly before the year end but only despatching them after the year end – this would be picked up by cut-off testing on sales invoices (matching invoices and goods despatch notes); and/or
– raising invoices and sending out goods to customers before the year end that haven’t been ordered – this would not be picked up by cut-off testing on sales invoices (because invoices and GDNs will match). However, scrutiny of post year-end returns and credit notes would identify “fictitious” sales. (As you point out this is not really a cut-off “error” as it would most likely be deliberate.)
Note also that a positive external confirmation of trade receivables should also detect such manipulation of sales (either because the customer had not received the goods at the year end or received goods that they hadn’t ordered and therefore returned.) - AuthorPosts
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