Question

Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of ________.

1) classification
2) cutoff
3) occurrence
4) authorization and accuracy

Answer 1

Tests for detecting post-year credit sales recorded in the current year ensure the accuracy of the cutoff assertion, which states that transactions should be recorded in the correct fiscal period they occurred.

Step-by-step explanation:

Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of cutoff. The cutoff assertion refers to transactions being recorded in the correct accounting period.

Auditors use various procedures to test a company's compliance with this principle, ensuring that transactions that occur before the end of the fiscal year are recorded in that year and those that occur afterwards are recorded in the new fiscal period.

For example, if a company makes a sale on December 31, it should be included in the current year's financial statements. If the same sale occurs on January 1, it should be recorded in the following year. Auditors will check sales invoices, shipping documentation, and the dates transactions were recorded in the ledger to verify that the cutoff is respected, which is crucial for producing accurate and timely financial reports.

Therefore the correct answer is 2) cutoff.