USA Activity dates

[nelan]

Just have a question surrounding year end invoice dates and activity dates.

So lets say you have an invoice for Jan 4th XXXX but it was for services from December 27th-31st prior year but you used the invoice date and it is now in the new year and an auditor wants to know why you didn't use the activity post date of December 31st prior year. How could you explain this and avoid a finding?

 

[jgilmore]

was the invoiced amount immaterial? Are you sure it wasn't for services through 1/1?

To avoid a finding, could you make a simple reversing accrual on 12/31 of prior year and reverse 1/1?

 

[nelan]

It was for around 6k which could be considered immaterial. So you would want to use th entry of debit right? 6k towards the expense account and credit the accrual for 12/31. Then have the reversed entry on 01/01 even though if was already paid through an ap system? From my understanding if the auditors catch it it would be an internal control weakness. So tell them to make an adjustment wouldn't help right?

 

[jgilmore]

Your auditors have a materiality threshold. You should ask what that it. If its under that threshold no adjusting entries necessary. Auditors are checking to see if your books are materially correct, not perfect. You should investigate why this entry wasn't booked in the correct period. Identify the control failure, write a brief report for the auditors explaining the failure and also the corrections to procedures to eliminate the problem in the future.

If it is material, then I don't see a problem making a reversing entry. Its not something you can sneak by them. I'm not suggesting you try too but if something like that happened with my auditors they'd be happy to let me book the reversing entry, I know because this has happened to me! The reason they may not like you doing that is because it changes the trial balance you've already given them and the one they have based all their work on. But if you are only changing two balances, it shouldn't be a big deal.

The accrual will put the expense in the proper period. The reversing entry will net with the expense already booked in January and zero out, leaving only the cash transaction in January.

Auditors are paid to find mistakes so they are going to find them. Its ok to have them but if this is all they found, then I'd say you're doing a good job.