🎯Assertions TF

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ANGAD BIR SINGH 15 September 2024

According to the text in Arens, Cut-off is a transaction related assertion where the test is to see if the transaction are recorded on the correct dates for the duration being audited. Would someone please verify if the answer to this question is correct, in that, cut-off is indeed a Account Balance related assertion?

I’ve asked few friends in the industry who’re designated accountants and they also agree. Please check this answer, thank you.

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Davis Gibson 30 June 2025

Like Angad Bir, I too am very confused about Question 12. Why are transactions near the balance sheet date not concerned with the cutoff balance-related audit objective? It would seem highly pertinent to cutoff to determine if transactions were recorded in the correct period. The explanation even says that “cutoff is a transaction-related audit objective.” Thank you.

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1. Maroun, CPA 1 July 2025
  
  Hello Davis,
  
  Under auditing standards, “cutoff” is specifically classified as a transaction-related audit objective, not a balance-related objective. Here’s why clearly explained:
  – Transaction-related objectives deal with ensuring transactions (like sales and purchases) are properly recorded in the correct accounting period. “Cutoff” specifically relates to verifying transactions close to the balance sheet date to ensure they aren’t improperly shifted between periods.
  
  – Balance-related objectives focus on verifying the fair presentation of account balances at a specific date (such as existence, completeness, valuation, and rights).
  
  The confusion arises because transactions near the balance sheet date affect account balances, but the auditing standards explicitly categorize “cutoff” as transaction-related because the auditor’s primary focus is on ensuring transactions themselves are correctly recorded in the proper period. For example, you cannot verify that an accounts receivable balance is recorded in the correct period unless you verify that the sales transactions themselves, which created the accounts receivable, were recorded on the correct dates. Thus, even though account balances like accounts receivable are ultimately impacted by cutoff procedures, auditors approach cutoff as a transaction-related objective, ensuring that transactions such as sales and purchases near year-end are recorded in the proper accounting periods.
  
  Thus, the original question and explanation provided were correct as per standard auditing terminology.
  
  I hope this clears up the confusion!
  
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🎯Assertions TF

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