Vouching definition

Vouching, widely recognized as “the backbone of auditing,” is a component of an audit seeking to

authenticate the transactions recorded in a firm’s book of accounts. When an accounting transaction is
vouched, it is tested and verified by presenting relevant documentary evidence.

Lawrence Dicksee has defined vouching as an act of comparing entries in the books of accounts
with documentary evidence in support thereof.

Ronald A. Irish has defined vouching as a technical term which refers to the inspection by the auditor
of documentary evidence supporting and substantiating a transaction.

According to F.R.M. De Paula, Vouching does not mean merely the inspection of receipts with the
cash book, but includes the examination of the transactions of a business together with documentary
and other evidence of sufficient validity to satisfy an auditor that such transactions is in order, have
been properly authorized and are correctly recorded in the books.

According to Arthur W. Holmes, Vouching is the examination of the underlying evidence which is in
support of the accuracy of the transaction. The process of vouching is intended to substantiate an entry
by providing authority, ownership, existence and accuracy.

Vouching is the act of reviewing documentary evidence to see if it properly supports entries made
in the accounting records. For example, an auditor is engaged in vouching when examining a
shipping document to see if it supports the amount of a sale recorded in the sales journal.
Vouching can work in two directions. For example, an auditor can trace actual inventory items
back to the accounting records to see if the items are properly documented, or start with the
inventory records and trace back to the warehouse shelves to see if the inventory exists.

When engaged in vouching, an auditor is looking for any errors in the amount recorded in the
accounting records, as well as ensuring that the transactions are recorded in the correct accounts.
The auditor is also verifying that transactions have been properly authorized (By Director or CFO
of the firm)

When vouching uncovers an error, the auditor may need to increase the sample size being audited
in order to gain assurance that a system operates properly. An alternative is to engage in different
auditing procedures.
Accounting entries made in the books must be supported by documentary evidence and inspection of
that evidence is called vouching. The Auditor judges the authenticity, of the accounting entries using
the technique of vouching. In case of unavailability of proper supporting documents, the Auditor may
have all reasons to doubt about errors or fraud or manipulation.
Thus, auditing is incomplete without vouching.
In auditing process, based on evidence, there are two main functions
 collection of evidence − through observation, confirmation, inspection, inquiry.
  evaluation of evidence − with relevance, adequacy and validity.

Objective of Vouching
Following are the main objectives of vouching −
 To check whether all the business transactions are properly recorded in the books of accounts
or not.
 To see whether recorded transactions are duly supported by documentary evidence or not.
 To verify that all the documentary evidence is authenticated and related to business
transactions only.
 To verify that transactions are free from errors or frauds.
 To verify whether voucher is processed through all the stages of Internal Check system
properly.
 To verify and confirm that the entries are recorded according to the capital and the revenue
nature or not.
 To check the accuracy of accounting transactions.

Importance of Vouching
Vouching forms the base for auditing and has an important part of Auditor’s duty. In case of
negligence in vouching, the Auditor will be held responsible; he cannot escape from his duty, if he
has done vouching carelessly. Following points show the importance of vouching −
 Vouching is equally important as passing of original entry in the books of accounts. If, original
entry is wrong, it will affect every process of accounting entry and its impact will be till the
end result. Similarly, vouching is base of all auditing process.
 Efficiency of vouching will decide the success of audit.
 Any errors and frauds are easily detectable if vouching is conducting in searching and
intelligent manner.
 Intelligent and faithful vouching will establish reliability on financial statements, i.e., Profit
and Loss account and Balance Sheet of any organization.
 If adequate internal control system exists, the Auditor may choose to do test checking instead
of complete vouching.

Vouching and Routine Checking

Routine checking covers the checking of every carry forward, posting to ledger account and balancing
of account. Vouching includes routine checking, which is a mechanical checking, whereas vouching
is made on the basis of documentary evidence.
A voucher may be a sales bill, purchase bill, payment receipt, pay-in slip, etc. All such types of
documentary evidence are known as vouchers.

Types of Voucher
There are two types of vouchers −
 Primary Voucher − Original copy of written supporting document is called primary voucher.
Like purchase Bill, cash memo, pay-in-slip, etc.
  Collateral Voucher − Copies of supporting documents which are not available in original are
collateral voucher like duplicate or carbon copy of sale invoice.
Cut-OFF
Dated
Serial Numbers
Invoice
Classification
Calculations
Casting
Match signatures of voucher
Authorization
Data entry (punching)
Posting

Example of Vouchers
Transactions Vouchers

Sales Sales order, sales invoice, goods outward register, cash receipt,
bank pay-in-slip, etc.

Purchase Quotations, purchase orders, purchase bills, goods inward

register, etc.

Cash Payments Demand note, cash receipt, cash memo, etc.

Cash Received Duplicate or carbon copy of cash receipt, contracts and

correspondence with payee, etc.

Bank Payments Cheques, counterfoils, bank statements, etc.

Payment received through Bank deposit slip, bank statements, etc.

Banking Channels

Important Points Regarding Vouching

Following points need to be considered regarding vouching −
 Accuracy of transactions.
 Authenticity of transactions.
 Proper classification of accounts.
 Voucher should be properly numbered serially and arrangement of vouchers accordingly.
 Every checked voucher should be tick marked with sign.
  Amount of receipt should be same in words and in figure.
 Period of payment should be there on receipt.
 Receipt should clearly mention “advance payment” if it is do.
 To check and investigate the books of accounts if they are in the name of Director, Manager,
Partner or any other employee of the company.
 To verify that proper certification of voucher should be there by any responsible officer of the
company.
 Investigation about missing vouchers in file if any.
 Every alteration in voucher must be authenticated by concerned officer.
 Vouching should be complete at once in one sitting for a particular period of time.
 All the expenses should be examined by the Auditor.
 Without existence of adequate internal control system in organisation, an Auditor should not
opt for test checking.
 Checking the classification of account must be done.
 Cash purchase should not be recorded twice, once in cash purchase and second one in credit
purchase.
 An Auditor should refer the resolution as passed at the meeting for certain transactions.
 An Auditor should verify that accounting entries are done on the basis of capital and revenue
items.

Tracing In Audit: Overview, Definition, And Examples

Audit
Auditing is a process in which a company hires an independent party, known as auditors, to examine
its financial statements. The purpose of auditing financial statements is to obtain an audit report,
provided by auditors, which contains the auditors’ opinion about whether the financial statements of
the company show a true and fair view. In addition, those financial statements should also be free from
any material misstatements. To present their opinion, auditors need to perform procedures and obtain
audit evidence associated with different assertions related to the financial statements. Similarly, the
audit evidence they gather must be sufficient and appropriate to be able to draw reasonable conclusions
on which they can base their opinion.

There are different sources of audit evidence that auditors can obtain. First of all, they can obtain audit
evidence through a test of controls. Test of controls is a process in which auditors examine the internal
controls of the client and see if those controls are effective. Similarly, auditors can obtain audit
evidence through substantive procedures. Substantive procedures are divided further into two
categories. These include tests of details and substantive analytical procedures. In the test of details,
auditors use different methods to check the details of transactions or balances. On the other hand,
substantive analytical procedures involve analyzing relationships between information
obtained from various sources to identify discrepancies.

Two of the most commonly used types of documentary evidence related to substantive audit
procedures are tracing and vouching. While both of them are closely related, they are very different.
Table Of Contents
 What is Tracing in Audit?
 Purpose of Tracing Audit
 Example of Tracing in Audit
  Tracing vs Vouching
 Conclusion

What Is Tracing In Audit?

Tracing in audit is one of the oldest and most reliable techniques that auditors use. It is straightforward,
yet it can help auditors in a great way. Tracing is the process of following a source document to its
subsequent accounting entries and presentation in the financial statements. However, usually, auditors
trace a source document to the accounting system of a business and use other procedures later to check
inclusion in financial statements. Tracing in auditing means locating an item. For auditing purposes,
tracing is the exact opposite of vouching.

For a single sales transaction, for example, tracing begins when auditors select a sales order. From the
sales order, they trace the related sales invoice. It may also include tracing the related goods delivery
note and dispatch notes. However, these notes generally relate to the testing of controls. Nonetheless,
auditors can still cross-check the units dispatched with the sales order and sales invoice. From the sales
invoice, auditors obtain the related voucher that the client used to enter the sale into the account.
Finally, they check the ledgers of the client for that specific voucher number.

The above process is a simplified example of how tracing works. Practically, auditors must select a
sample of source documents and trace them to the accounting system of the client. It may require
auditors to go from one department to another, several times, to obtain evidence. For any missing
invoices, auditors can inquire the management about omissions. Ideally, there should be no omissions
from the source documents to the accounting systems. Likewise, the details in the source documents
should also match with other source documents and details in the accounting system.

Purpose Of Tracing Audit

The purpose of the tracing audit is to ascertain that the internal controls at the client are effective.
Tracing a transaction from a source document to the accounting system and subsequently to the
financial statements can expose any control deficiencies in the internal controls of the client. For
example, if a sale order contains a different number of units as compared to the respective sales
invoice, there is a control deficiency in the process.

Similarly, tracing can give auditors a general overview of what happens in a particular process at the
client. For example, when auditors trace a purchase invoice to the accounting system, they also go
through the whole process. It acts as a walkthrough for them as it helps them understand which
department is responsible for each stage of the purchase cycle. Similarly, it can help them obtain a
better understanding of what goes into the purchase process of the client. It can, therefore, further
impact the audit procedures that auditors perform, and the overall quality of audit.

Tracing also plays a vital role in testing the completeness and, sometimes, accuracy assertions of the
financial statements. Completeness assertion is to determine whether all transactions and events that
should have been recorded are recorded and all related disclosures that should have been included in
the financial statements have been included. Accuracy assertion, on the other hand, relates to whether
amounts and other data relating to recorded transactions and events have been recorded appropriately
and related disclosures have been measured appropriately.

Example of Tracing in Audit

Auditors of a company, ABC Co., want to check its purchase process. Among other audit procedures
that the auditors use, they also use tracing to check the completeness of the transactions. To use tracing
for the purchase process, the auditors use the following method.
 They take a sample of purchase requisitions received from the store department of ABC
Co. The auditors don’t refer to the financial statements to pick the sample.
 From the purchase requisitions, auditors trace the respective purchase orders, which
they find in the purchase or procurement department of ABC Co.
 Once they identify the purchase orders, they trace the purchase order to the goods
received notes. Auditors confirm the units requested in the requisition note and the units
in the purchase order match with each other.
 From the goods received note and purchase order, auditors trace the relevant invoice
received from the vendor from whom ABC Co. purchased the goods.
 Using the invoice, auditors trace the relevant voucher using which ABC Co. entered the
purchase invoice into the accounting system.
 Finally, using the number on the voucher, auditors trace the accounting entries in the
accounting systems of ABC Co.
While this is an example of how auditors may trace purchases in the accounts of a client, the actual
process may vary from one client to another. Auditors need to obtain an understanding of the systems
of each client to determine how they should go on about tracing source documents to the accounting
systems.

Tracing Vs Vouching
As mentioned above, auditors use tracing and vouching during audits as procedures to obtain audit
evidence. However, many people still confuse the difference between tracing vs vouching. While both
of these processes include examining the source documents of a company and its related posting in the
accounting systems, the way both of these processes go on about doing it is different.

First of all, tracing starts from the source document up to the respective posting in the client’s
accounting system. Vouching, on the other hand, is the complete opposite of it. Vouching starts from
the posting in the accounting system all the way back to the source document of the transaction. For
tracing, auditors don’t consider the total value of a transaction or a line item on the financial
statements. For vouching, however, auditors start from first considering the value of both the
transaction and line item in the financial statements.

Similarly, tracing and vouching in audit are both different in the assertions they check. With tracing,
auditors mostly focus on verifying the ‘completeness’ assertion of transactions. It means they check
whether all transactions with source documents are also posted in the financial system of the client.
Vouching, among other assertions, mainly focuses on the ‘occurrence’ assertion. That means auditors
use vouching to check whether transactions posted in the accounts of the client have supporting
documents to verify them or have occurred.

In short, the main difference between tracing vs vouching is the direction they take. Tracing follows a
bottom-up approach, starting from source documents and ending at the accounting entries in the
financial system of the client. In contrast, vouching follows a top-down direction, starting from
accounting entries and ending at the source documents.

Conclusion
Tracing is an audit procedure used by auditors to obtain audit evidence related to transactions in the
financial statements of clients. Auditors use tracing to check the internal controls of the client for
effectiveness, get an idea of the processes behind transactions and balances, and to verify the
completeness assertion of transactions. Tracing vs vouching are similar, as both include checking
source documents and accounting entries. However, tracing starts from the source document and goes
to the accounting entries while vouching starts from accounting entries and goes to the source
document.
Dated: ____________
Serial # ________
SP19- BBA – ABC
Cash Voucher
For the year 2020-21

Code Description Ref Debit Credit

Details:
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_______________________________________________________________________________
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Prepared By: Checked By: Authorised By: Entered By: