Accounts Receivable - For each of the following, please explain if an auditor’s

Question

Accounts Receivable - For each of the following, please explain if an auditor’s review of the client’s sales cutoff would detect these problems:
(a) Would excessive goods returned for credit be detected by a sales cut-off test – why or why not?
(b) Would unrecorded sales discounts be detected by a sales cut-off test – why or why not?
(c) Lapping of year-end accounts receivable be detected by a sales cut-off test – why or why not?
(d) Inflated sales for the year – could it be detected by a sales-cut-off test – why or why not?

(Points : 30) Essay question for External Auditing for final exam

Explanation / Answer

Answer: (d) Inflated sales for the year – could it be detected by a sales-cut-off test – Because Sales cutoff tests are designed to detect the client’s manipulation of sales. By examining recorded sales for several days before and after the balance sheet date and comparing them with sales invoices and shipping documents, the auditor may detect the recording of a sale in a period other than that in which title passed.

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