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- This topic has 1 reply, 2 voices, and was last updated 5 years ago by Kim Smith.
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- November 10, 2018 at 9:37 am #484375
Sir what’s the meaning of cut off testing. I’m seeing this everywhere. For example: Cut off testing on receivables or revenue or expenses and so.
November 10, 2018 at 3:09 pm #484404“Cut-off” is the financial statement assertion for classes of transactions, that they have been recorded in the correct period – so it’s all about the transactions around the reporting (year-end) date.
If inventory is received on or shortly before the y/e date it will be included in inventory (it exists and will be included in the count) – if the purchase invoice is NOT recorded until after the y/e, purchases and payables will both be understated, Similarly if goods are despatched before the y/e, revenue and receivables would be understated if the sales invoice is not recorded. So cut-off tests are taking samples of GRNs/GDNs immediately before and after the y/e and matching to purchase/sales invoices and confirming that they are recorded the correct side of the y/e.
An incorrect cut-off on purchases may also be detected by suppliers’ statement reconciliations. If the supplier sent the goods and invoiced it before the y/e but the audit client has not recorded it, it will appear as a reconciling item. The client may account for such items in a “goods received not invoiced accrual”.
I hope that provides some clarity. - AuthorPosts
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