[Anonymous]

Which of the following procedures would be most appropriate for testing the completeness assertion as it applies to inventory?

A. Scanning perpetual inventory, production, and purchasing records

B. Examining paid vendor invoices

C. Tracing inventory items from the tag listing back to the physical inventory quantities

D. Performing cutoff procedures for shipping and receiving

D. The completeness assertion states that every transaction that should have been recorded actually was recorded. Testing for the completeness assertion is testing to see that the list is not complete, and performing cutoff procedures accomplishes this task. Scanning records, examining paid invoices, and tracing items from the tag listing back to the physical inventory does not determine if the item has or has not been recorded.

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How does cutoff test completeness? I thought it was tracing as said in the Ninja Notes???????

[Anonymous]

Cutoff procedures determine

1. when the inventory was shipped as to whether or not it needs to be included in inventory. If you have an item that you made a sale for on 12/31/11, but it didn't ship until 1/1/12 then it still needs to be included in your inventory as of 12/31/11. Performing a test of items sold within the last couple of days of the taxable year and the first couple of days of the next year versus when they actually shipped provides completeness testing for revenue recognition and for inventory.

2. Similar cutoff tests are applied to receiving. Was it sitting in your warehouse, but not yet received in? That means it didn't hit your general ledger, but you had possession of the merchandise. It belonged to you, but it wasn't on your books so your inventory was not completely recorded.

[Anonymous]

Thanks for the explanation.

[Anonymous]

Assertion tested by tracing depends on the direction of procedure.When you are answering questions on auditing procedure, pretend as if you are performing the procedure and ask yourself what would you do if you want to reach a certain objective. While going thru the record you noticed some large sales and curious if those were true/valid. Then you might say, “Hey Mr. Client, I'm wondering if these recorded sales here were valid, do you have documents for these”. If the client provided the documents and they support the records then you can say, “Ok, they're valid.”. So what if while Mr. Client was digging thru the pile of documents, you noticed some large invoices and you're curious if those were recorded (completeness). You might say “Mr. Client, I noticed these few large invoices here, can you show me where can I find these on your records?” So if the client showed you they're recorded properly, then you might say “Ok, they're completely recorded.”.

[Author]

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