Question

Which of the following might be detected by an auditor's review of the entity's sales cutoff?

A) Excessive goods returned for credit.
B) Unrecorded sales discounts.
C) Lapping of year-end accounts receivable.
D) Overstated sales for the year.

Answer 1

An auditor's review of the entity's sales cutoff can detect issues such as excessive goods returned for credit, unrecorded sales discounts, and lapping of year-end accounts receivable.

Step-by-step explanation:

When conducting an auditor's review of the entity's sales cutoff, several issues might be detected:

1. Excessive goods returned for credit: This could indicate a potential problem with the quality or accuracy of sales transactions.
2. Unrecorded sales discounts: If sales discounts are not properly recorded, it could result in an overstatement of sales.
3. Lapping of year-end accounts receivable: This refers to the manipulation of accounts receivable balances to cover up theft or fraud.

Therefore, the correct answer would be option C) Lapping of year-end accounts receivable.