Question

Cutoff misstatements occur when:The auditor fails to obtain the end-of-year bank statement directly from the bank, obtaining instead the statement which includes the two succeeding weeks

Subsequent period
transactions are
recorded in the
current period
Current period
transactions are
recorded in the
subsequent period
A. YesYes No
B. Yes No Yes
C. No Yes Yes
D. No Yes No

Answer 1

Cutoff misstatements occur when transactions are not recorded in the correct accounting period. Option C is correct as it states 'No' to obtaining a bank statement incorrectly and 'Yes' to both subsequent period transactions and current period transactions being misrecorded.

Step-by-step explanation:

Cutoff misstatements refer to errors made when transactions are not recorded in the correct accounting period. These misstatements can be a result of either including subsequent period transactions in the current period or by recording current period transactions in the subsequent period.

Hence, for the given options, subsequent period transactions being recorded in the current period is a cutoff misstatement, and current period transactions being recorded in the subsequent period is also a cutoff misstatement.

The correct answer to the question is option C: No for the first statement because the end-of-year bank statement issue does not directly relate to the concept of cutoff. However, yes for the second and third statements, as they both represent cutoff misstatements in which there is a failure to record transactions in the proper period.