Question: Niosoki Auto Parts sells new parts for foreign automobiles to

Niosoki Auto Parts sells new parts for foreign automobiles to auto dealers. Company policy requires that a prenumbered shipping document be issued for each sale. At the time of pickup or shipment, the shipping clerk writes the date on the shipping document. The last shipment made in the fiscal year ended August 31, 2011, was recorded on document 2167. Shipments are billed in the order that 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:


Required
a. What are the accounting requirements for a correct sales cutoff?
b. Which sales invoices, if any, are recorded in the wrong accounting period? Prepare an adjusting entry to correct the financial statement for the year ended August 31, 2011. Assume that the company uses a periodic inventory system (inventory and cost of 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 that error?
d. Describe, in general terms, the audit procedures you would follow in making sure that cutoff for sales is accurate at the balance sheet date.
e. Identify internal controls that will reduce the likelihood of cutoff misstatements. How would you test eachcontrol?
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  • CreatedOctober 10, 2012
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