Question about Completeness Assertion

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  • #175109
    meli083
    Member

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

    Answer: Performing cutoff procedures for shipping and receiving.

    Explanation.Performing cutoff procedures provides assurance that goods in transit (shipped or received) are appropriately included or excluded from inventory and this procedure is most appropriate for testing the completeness assertion.

    I’m sorry this a little over my head right now. How do cutoff procedures used in this way assure that inventory received are eventually recorded?

    AUD: 2/28/2013 - 86
    FAR: 10/19/2013 - 83
    REG: 1/6/2014 - 80
    BEC: 2/27/2014 - 81

Viewing 4 replies - 1 through 4 (of 4 total)
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  • #385532
    Anonymous
    Inactive

    @meli083 I have not gotten to that part in AUD yet. I wonder if it is because the goods in transit should not be included in the inventory count?

    #385533
    Anonymous
    Inactive

    You have to trace/vouch invoices, shipping documents and the general ledger. If the audit client delivers an order to the common carrier on 12/31 and the shipping terms are FOB Destination, do you count it in inventory? Yes. If the shipping terms are FOB Shipping Point? No. The Cut-off procedures will allow you state with reasonable assurance that the inventory amount on the Balance Sheet is complete. Remember that you are stating with REASONABLE ASSURANCE, not absolute assurance.

    #385534

    Here's how I see it:

    Completeness talks about this in a nutshell; If I'm looking at all my source documents (receiving documents, bills of lading, sales invoices) are they all put on the books at the right time?

    For cutoff tests, you would probably look at a sample of Bills of lading (Meaning shipped out) that are dated BEFORE and AFTER the B/S date and trace to the books to make sure those pieces of inventory are taken OFF the books at the appropriate time.

    Conversely, you could look at a sample of receiving documents (Meaning you received it) dated BEFORE and AFTER the B/S date to make sure that the inventory is again properly recorded ON the books (Receiving doc before B/S date should be included in the books and inventory count as of the B/S date, and vice versa)

    Hopefully this all makes sense

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    A-84 NOV 2012
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    #385535
    meli083
    Member

    Thanks for the responses! Now that it's broken down, it's A LOT clearer now…

    AUD: 2/28/2013 - 86
    FAR: 10/19/2013 - 83
    REG: 1/6/2014 - 80
    BEC: 2/27/2014 - 81

Viewing 4 replies - 1 through 4 (of 4 total)
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