Vouching vs Verification
Both vouching and verification are an integral part of any audit process. Many times, vouching is confused with verification but they are different from each other in terms of the nature & scope of examination involved.
Vouching is concerned with the checking of records with the help of supporting documents. These supporting documents or vouchers constitute bills, invoices, purchase or sale receipts, goods inward/outward register, minute book, and similar evidence that form the foundation of recording transactions in a business.
For example, every accounting entry for the purchase of goods is evidenced by a supporting receipt against which the auditor checks the authenticity of such purchase. Thus, when an auditor checks the accuracy of business transactions with their corresponding documentary evidence, it is called vouching. It is popularly known as the acid test of an audit because it tests the truth of a transaction recorded in the client’s books. When entries exactly match with their supporting vouchers, it ensures that the entries are correctly recorded in the books and do not represent any false figures.
On the other hand, verification is a process to check the title, possession, existence, and valuation of assets. By verification, an auditor enquires into the values of assets and liabilities appearing in the balance sheet to satisfy himself that they are correct. This is done by the inspection of documentary evidence available such as lease deeds, possession certificates, etc., and also sometimes by physically inspecting the assets. The purpose of verification is to ascertain that the assets and liabilities purported to be held by the client are actually in his ownership and that they are fairly valued in the books. Any false valuation will distort the financial picture displayed in the year-end statements.
Thus, with vouching, the auditor can be assured about the arithmetical accuracy and the genuineness of transactions but verification enables the auditor to enquire about the existence, ownership, and possession of assets and also whether they are free from any charge or not. One cannot judge that an asset actually exists on the balance sheet date by mere cross-checking of a journal entry regarding its acquisition. The presence of accounting entries can only purport that a particular asset ought to exist, however, it is only by physical examination and confirmation that one can verify its actual existence on the balance sheet date.
One more difference between the two is that while verification is specifically related to assets and liabilities, the term ‘vouching’ deals with all the accounting documents and not just those of assets and liabilities.
Furthermore, verification is done on the basis of vouching, that is why it is also said that verification is a part and parcel of vouching. One would first check the existence, ownership, etc. of assets against their supporting documents and verify it from the inspection of the company’s cash in the cash box, physical inventory, inspection of shares certificates, mortgage papers, working condition of assets, etc. To verify the assets, an auditor can also observe or witness the inspection of assets done by others or obtain written confirmation from outside parties regarding the existence of assets. In addition, an auditor may also rely on the report of a certified valuer to assess the values of assets and liabilities.
Other points of distinction between vouching and verification are shown below:
Who performs it?
Normally, the work of verification is performed by the auditor of a company himself. But vouching is usually done by his assistant staff in most cases, although it may be done by the auditor also.
Verification is related to only assets and liabilities but vouching is carried out in relation to all accounting documents.
Vouching comes into play at the start of an audit, but verification is done at the end of the audit or when the balance sheet is checked.
The objective of vouching is to ensure the genuineness of the transactions to make sure that no fake transactions are recorded in the books of accounts. On the other hand, verification is done to find out the ownership, valuation, and title of the assets so that the state of affairs of the company exhibits a true and fair view.
With vouching, an auditor ensures that:
- Entries & transactions are supported by proper documentary evidence,
- Such entries are properly maintained, and
- They are correctly recorded in the books of accounts (both arithmetically and logically)
By performing verification, an auditor confirms:
- That the assets and liabilities appearing in the balance sheet are existent,
- That the legal ownership and possession of assets rests with the client or an authorized person,
- That the assets are free of any charge, and
- That their valuation is correct
Vouching is a basic and easy function for auditors. But verification is relatively difficult as it involves inspection and observation of assets.
Both vouching and verification help avoid the manipulation of accounts and are an important part of an auditor’s duties. An auditor must try his best to ascertain the authenticity of transactions recorded in the books against supporting vouchers. He must also satisfy himself whether a particular asset appearing in the balance sheet is shown at the proper value, belongs to the client, is free from any lien, and is in sole possession of the client.
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