Final answer:
On receiving the bank cutoff statement, the auditor should trace deposits listed on the cutoff statement to deposits in the cash receipts dated subsequent to year-end to ensure validity and proper recording. The correct answer is therefore option C
Step-by-step explanation:
When auditing financial statements, an auditor's appropriate response upon receiving the bank cutoff statement is to trace deposits listed on the cutoff statement to the deposits in the cash receipts journal entries that are dated subsequent to year-end. This procedure ensures that the deposits in transit at year-end were actually deposited shortly after the year-end and are not falsely inflating the cash balance at the year-end.
The correct answer is therefore option C: deposits listed on the cutoff statement to deposits in the cash receipts dated subsequent to year-end. This helps in verifying that the deposits in transit recorded on the year-end bank reconciliation are valid and properly reflected in the financial records.
A financial statement audit is a professional examination of a company’s financial statements. Its goal is to determine whether the financial statements present a fair and materially correct representation of a business’s activity and financial position, in accordance with the Generally Accepted Accounting Principles (GAAP) issued by the Financial Accounting Standards Board. Specifically, auditors opine on the accuracy of an income statement, balance sheet, statement of cash flows and all the disclosures that support them. Under GAAP, external, independent auditors must perform financial statement audits.