Question

A cutoff bank statement can be used when performing audit procedures in several sections of the audit. Identify the two financial statement sections where a cutoff bank statement can be used as audit evidence. For each of these financial statement sections, (i) describe the audit procedure and (ii) identify the relevant financial statement assertion.

Answer 1

A cutoff bank statement can be used in the cash and accounts receivable sections of an audit to provide audit evidence and verify financial statement assertions of completeness and existence.

Step-by-step explanation:

A cutoff bank statement can be used as audit evidence in the sections of the audit for cash and accounts receivable.

(i) For the cash section, the audit procedure involves comparing the closing balance on the bank statement to the opening balance on the subsequent period's bank statement or reconciliation. This helps ensure that all cash transactions have been recorded in the correct accounting period.

(ii) The relevant financial statement assertion for the cash section is the completeness assertion, which ensures that all cash transactions have been recorded.

(i) For the accounts receivable section, the audit procedure involves reviewing the bank statement for any customer payments received shortly after the period-end. This helps identify any unrecorded cash receipts that should be included in the accounts receivable balance.

(ii) The relevant financial statement assertion for the accounts receivable section is the existence assertion, which ensures that the recorded accounts receivable are valid and exist.