Siddhant SaxenaSiddhant Saxena asked 6 months ago

Adherence to Cut-off Procedures: The company cut-off procedures as regards closing
inventory and work-in-progress should be investigated, as any change in the procedure as
compared with the previous year would cause a difference in the gross profit ratio. It should
also be seen that the procedure laid down has been observed by the concerned personnel
and rightly adhered to. The auditor should test relevant transaction and ensure that
everything is incorporated in the financial statement.

1 Answers
RaviRavi Staff answered 6 months ago

Cut-Off is the last date of financial year. Cut-Off procedure means ensuring transactions till last day are recorded in current year they are not spilt over to next year and transactions of next year are not recorded in current year.
Companies have different procedures to ensure cut-off
if price is FOB —  customer order + goods given to transporter of customer as sale
if price is CIF — Customer Order + goods given to transporter + delivery to customer
so we have to see if  there’s any change in policy and procedure, if there is change we have to see if it is appropriate  and if it is not appropriate gp ratio mismatch would occur .
if you book sale then ensure it is not shown in closing stock and goods in transit