Cutoff bank statement

Definition

The auditor asks the bank to send a statement, with check images where available, covering a period after the balance sheet date, commonly one to four weeks, directly to the auditor rather than the client. It is compared with the client's year-end reconciliation to see which items cleared, and when.

Why it matters in an audit or review

It is independent evidence that outstanding checks were truly outstanding and deposits in transit were truly in transit. A deposit in transit that appears at the bank two weeks later may signal window dressing or lapping. An outstanding check that clears before year end means the reconciliation is misstated.

Example

At December 31 (illustrative), the client lists 18 outstanding checks, $31,700. The January 1 to 10 cutoff statement shows 14 clearing for $27,900. The auditor inspects the four remaining items, $3,800, which are all dated December 29 and 30 with no later clearing, and examines the invoices for them. One deposit in transit of $5,100 cleared on January 9, so the auditor asks why it took that long.

Common mistakes

• Letting the client request or receive the statement.
• Relying on an online screenshot the client printed.
• Not checking the statement covers a later date than the reconciliation items require.

FAQ

Does a cutoff statement replace the bank confirmation?

No. The confirmation verifies the year-end balance. The cutoff statement tests reconciling items.

Sources

• AICPA, AU-C Section 505, External Confirmations (confirmation of the year-end bank balance)
• AICPA, AU-C Section 330, Performing Audit Procedures in Response to Assessed Risks
• AICPA, AU-C Section 500, Audit Evidence (reliability of evidence obtained directly from an external source)
• Cutoff bank statements are an audit practice technique; the AU-C sections above govern the evidence they support