Vouching vs Tracing in Audit
Vouching vs Tracing:
Vouching and tracing are both techniques used by auditors to verify the accuracy of a company’s financial records, but they involve reviewing different parts of the accounting process. In this blog, we attempt to draw a line of distinction between them.
Definition of Vouching
In the context of an audit, vouching refers to the process of examining and verifying evidence in support of a transaction or balance in the financial records of an organization. This is done to ensure that the transactions are legitimate and properly recorded.
Definition of Tracing
Tracing is the process of following a transaction or item from its origin to its final destination in order to verify that it has been recorded and processed correctly.
The main difference between Vouching & Tracing
The main difference between vouching and tracing is that of the approach. Both of them run in the opposite direction.
With vouching, the auditor starts with the financial statements and looks for supporting documentation to confirm that the information in the statements is accurate. This involves reviewing the transactions that are recorded in the financial statements and following them back to the source documents (such as invoices, receipts, and other supporting documentation) to verify that the transactions actually took place and were recorded correctly.
On the other hand, when tracing, the auditor starts with the source documents and follows the transactions through the accounting system to ensure that they have been recorded correctly. This involves reviewing the transactions as they are recorded in the accounting records, and checking that they are properly reflected in the financial statements.
Thus, in nutshell, when an auditor traces, he starts with the source document and locates the transaction in the financial statements whereas, with vouching, the auditor moves backward from the financial statements to the source documentation of transactions.
Nevertheless, both vouching and tracing are important techniques that auditors use to ensure the reliability and accuracy of a company’s financial statements.
Which audit assertion do they address?
Vouching is typically used to address the existence assertion, which means confirming that transactions and events recorded in the financial statements actually took place. For example, an auditor might use vouching to check that a sale recorded in the sales journal is supported by a corresponding sales voucher.
Tracing, on the other hand, is often used to address the completeness assertion, which means ensuring that all relevant transactions and events have been recorded in the financial statements. For example, an auditor might use tracing to check that all sales vouchers have been properly recorded in the sales journal and that the totals in the journal match the vouchers.
Thus, they more or less do the same job, i.e., check the correctness of accounts.
Detection of misstatements
As previously mentioned, tracing involves starting with the original documents and following the transactions through the accounting system to ensure that they have been recorded correctly. This can help auditors to identify any understatements in the financial statements, as it allows them to locate transactions or events that may not have been included in the financial statements.
On the other hand, vouching involves starting with the financial statements and looking for supporting documentation to confirm that the information in the statements is accurate. This can help auditors to identify any overstatements in the financial statements, as it allows them to check that the transactions and events recorded in the financial statements actually took place and were recorded correctly.
Comparison Table (Vouching vs Tracing)
Given below is a table that compares the main differences between vouching and tracing as auditing techniques:
| Basis | Vouching | Tracing |
| Starting point | Financial statements | Original documents |
| Flow of review | From financial statements to source documents | From source documents to financial statements |
| Primary assertion addressed | Existence | Completeness |
| Main purpose | Verify the accuracy of financial statements | Verify the completeness of financial statements |
Conclusion (Vouching vs Tracing)
Overall, both vouching and tracing are important techniques that auditors use to verify the accuracy and completeness of a company’s financial records and to ensure that the financial statements are reliable.
With vouching, the auditor verifies transactions with source documents in support thereof. Whereas with tracing, source documents are tracked down to accounting records, and then ultimately to financial statements.
Further, it may not be practical to review every single transaction when using both tracing & vouching techniques, so one may need to use sampling techniques to review a representative sample of transactions and extrapolate their findings to the larger population.
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