Question

a-What is the purpose of Cutoff Bank Statement, explain your answer?

b-What does Subsequent Events mean? Detail your answer.

Answer 1

A) The purpose of the cut off bank statement is to check whether reconciling items on client bank reconciliation as per the date mentioned in the balance sheet. These checks are performed by the auditor in a company which includes the following procedures To check the deposit in transit to determine that any delay of unusual time okka between the date recorded by the bank and as per the books. Cut off bank statement is also so used to examine and enclosed data relates with unusual items like large amount payable to cash. It is also ensured that whether the cheques were altered or double and endorsed.

It is also determine that whether the checks which were issued after the balance sheet date were listed as outstanding cheques as per the records. The number of uncleared checks also checked by the auditor through cutoff bank statement.

B) Meaning of subsequent events:

the event which happens just after the year ending but before the issuance of financial statements considered as subsequent events . It may leads to confusion for the accountants. There are codification describe under the ASC 855 subsequent events which helps the accountant to separate events and to mention subsequent event disclosure. The subsequent events create problem because it affects the investors opinion hand main mislead by the statements issued at the period end.