Auditing Accounting

16-26.

Niosoki Auto Parts sells new parts for foreign automobiles to auto dealers. Company policy requires that a prenumbered shipping documents be is issued for each sale. At the time of pickup or shipment, the shipping clerk writes the date on the shipping document. The last shipment, the shipping clerk writes the date on the shipping document. The last shipment made in the fiscal year ended August 31, 2013, was recorded on document 2167. shipment are billed in the order that the the billing clerk receives the shipping documents. For late August and early September, shipping documents are billed on sales invoices as follows:

Shipping Document no Sales invoice no

2163 5437

2164 5431

2165 5432

2166 5435

2167 5436

2168 5433

2169 5434

2170 5438

2171 5440

2172 5439

The August and September sales journals have the following information included

Sales Journal- August 2013

Day of month Sales invoice No Amount of Sale

30 5431 $ 726.11

30 5434 4,214.30

31 5432 429.83

31 5433 1,620.22

31 5435 47.74

Sales Journal- September 2013

Day month Sales Invoice no Amount of sale

1 5437 $ 2,541.31

1 5436 106.39

1 5438 852.06

2 5440 1,250.50

2 5439 646.58

a. What are the accounting requirements for a correct sales cutoff?

B. Which sales invoices, if any, are recorded in the wrong accounting period? Do a adjusting entry to correct the financial statements for the year ended August 31, 2013. Assume that the company uses a periodic inventory system (inventory and cost sales do not need to be adjusted).

c. Assume that the shipping clerk accidentally wrote August 31 on shipping documents 2168 through 2172. Explain how that will affect the correctness of the financial statements. How will you, as an auditor, discover the error?

d. Describe, in general terms the audit procedures you would follow in making sure that cutoff for sales is accurate at the balances sheet date.

e. Identify internal controls that will reduce the like hood of cutoff misstatements. How would you test each control?