Field Notes
Cut-Off Testing Without the Jargon
A plain explanation of why auditors inspect invoices and shipping documents around the fiscal year-end date.
cut-off revenue
Cut-off testing asks a simple question: did sales and purchases land in the correct fiscal year? An invoice dated 31 March for goods that left the warehouse on 2 April belongs in the new year if risk and title pass on shipment.
Auditors typically select shipments and receipts a few days before and after year-end. They match bills of lading, delivery notes, and invoice dates. Your shipping clerk’s timestamps matter as much as the sales ledger.
Common friction appears when sales staff backdate invoices to meet monthly targets. Even when cash arrives later, the accounting question is when the company earned the revenue under its stated policy—not when the target sheet looked healthier.
Prepare a short memo describing your revenue recognition policy in ordinary language. If you recognise revenue on delivery, say so and show how delivery is evidenced. Ambiguous policies create longer discussions than imperfect but consistent ones.
When cut-off exceptions appear, quantify them. A list of corrected invoices with amounts lets management and the auditor decide whether adjustment is required before the report is signed.